Banks must embrace fintech companies or risk being left behind as the payments landscape undergoes a radical technological overhaul, according to a new report from BNY Mellon.
According to the report, 'Innovation in Payments: the future is fintech', new technology holds great potential to transform how consumers and clients initiate and process transactions. It’s no longer just a case of new currencies or faster payment methods, but an entire rethinking of how transfers of any 'value' might be undertaken.
With some 4000 active fintech startups in the arena and investment in the sector tripling last year to $12 billion, a challenge to bank dominance is emerging not just in retail but also wholesale and corporate payments.
Although the financial services industry already has one of the highest ratios of IT spend as a proportion of revenue, over three quarters of this is estimated to be in maintenance rather than new services.
Banks need to redress this imbalance, says the report, if they are to thrive in the new fintech era. They must also compete with smaller rivals by implementing swifter technology development cycles and replacing legacy payments systems.
Ultimately, though, the best way to harness the revolution being unleashed by technology such as the blockchain is to work with fintech firms, through partnerships, capital investment and accelerator programmes.
Ian Stewart, CEO, treasury services business, BNY Mellon, says: "While the banking industry is traditionally conservative about change, any hesitation or ambivalence here could be costly. In order to position themselves at the centre of the payments industry of tomorrow, banks must act today to understand, interact with, and cherry-pick from the full smorgasbord of fintech developments."
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