Jonathan Quin, founder and CEO at money transfer firm WorldFirst detects a step-change in bank relationships with fintech startups at the Money20/20 show in Copenhagen.
We’re now into day three of Money 20/20 Europe and the conference has been awash with new ideas and discussions on the future of finance. The energy around the event has been particularly focused on fintech companies disrupting traditional financial order which in turn creates a large elephant in the room - what role will banks play in the future and what should they do next?
For me, one of yesterday’s most interesting comments came in a meeting I had with Carlos Torres Vila, CEO of BBVA bank. As one of the 50 biggest banks in the world they are clearly aware of a raft of start-ups getting a lot of press coverage claiming they’re going to take business from the bank across almost all aspects of its offering. Banks have generally adopted one or more of four approaches to Fintech disruption: Denial, Acquire, Protect or Improve.
But Carlos Torres Vila recognised that there is another option. He used the word which I’ve heard repeatedly this week - “Collaboration”. In the past we’ve heard PE firms like Andreesen Horowitz ask “who are you going to kill?”. Collaboration is a very different model to “killing” but one which I think is much more likely to happen. The banks retain core infrastructure, which none of the start-ups are trying to copy. No-one wants to rebuild the bowels of banking. It’s too expensive and definitely not in the “sexy” consumer world.
Carlos’s comments were echoed by Andy Maguire (HSBC’s COO) in his speech and other people I spoke to from JP Morgan, Deutsche and HSBC. Banks no longer dismiss fintech providers, they’re starting to see them as people to work with and many start-ups have realised that they can do the front-end piece but still need the banks to provide the backbone.
At World First we too have seen this with approaches from banks wanting to work with us to do the bits they’re not good at. This would have been unthinkable ten years ago. We’ve also seen a variation on this with our partnership with Virgin Money which we launched last year. In this model the bank has the customer base but we provide the full end-to-end service on a white-label basis. This is a small change in rhetoric but I think it’s a significant shift, and a significant recognition by the banks that they will lose out to fintech providers, but also that they can retain a key part in the overall service.
At World First we recognise this too and it’s exactly how we operate. We absolutely need the banks for the core account and payment infrastructure but we offer customers a better service and a better rate - and that’s what they want. The customer knows and doesn’t care that we are using the banks in the back-end. But they do care about the process and the customer service. Recently we carried out research among UK SMEs who make overseas payments which confirms this: Over half (52%) of SMEs using a bank say their bank does not understand their business’s FX needs, whilst 9 out of 10 (87%) UK SMEs using a fintech ‘specialist’ for FX rate their service as better than banks.
There will be a lot more chat and soul searching discussions this week about this area and some of the banks are probably still at the deny stage but if the banks do all accept this model and retrench to focus on what they’re good at (and where they have true IP and undisruptable technology) I think this could be a win for consumers, Fintech companies and the banks.
Jonathan co-founded World First in January 2004. His career before this included two years as head of business development within the Financial Markets division of RBS. Prior to that he was at Citibank, initially as a trader before moving to the bank's global corporate sales desk. He then looked after the European sales of Citibank's online FX trading products.