The paradigm of challengers and incumbents should be revisited in the light of widespread collaboration between the two, according to Tony McLaughlin of Citi and Mike Massaro, CEO of Flywire.
Massaro and McLaughlin have spoken of the new era of partnerships between fintechs and incumbents that is taking shape, defying the commonly-held assumption that the latter are resistant to innovation.
McLaughlin uses the analogy comparing fintech disruptors as “barbarians at the gate” who were then invited inside the city for a cup of coffee.
“There is so much collaboration now. The success of fintech has made banking better. We’ve had to become better to meet the expectations of forward-thinking clients,” he says.
“One example of that is the ability to deliver services through APIs, because banks traditionally had file-based connections and graphical user interfaces. This is something we’ve had to invest in to support our fintech clients,” McLaughlin adds.
Among them is Flywire, a Boston-based vertical payments company, which offers vertical specific payment services to organisations across education, healthcare and travel among others.
“I think it is wrong to assume that banks aren’t innovating because they are,” Massaro says.
“Challenger banks and other fintechs just showed them how to innovate a little differently. Incumbent banks were able to invest heavily on infrastructure, for example, an area which is pretty much unavailable to anybody but banks.”
Massaro refers to the work Flywire has done with Citi, something which would not have been possible had the bank not been so bullish on their investment in FX APIs, cash management integration points and much else besides.
These may not be as up front as a slick consumer mobile app that a challenger banks rolls out, but it is vital for creating infrastructure that businesses can build upon.
“I think it’s easy enough in headlines to say that these challenger banks are putting out a prettier app to go after incumbent banks - ‘the barbarians at the gate’, as Tony says - but the reality is much more complicated,” Massaro says.
“Five to 10 years ago, there was a user experience gap between what you would see in a banking application and a challenger’s app. But now, incumbents have innovated at the platform level and caught up at the consumer level relatively quickly.”
If this is the case, it points to challengers and incumbents collaborating on something approaching a level playing field without the traditional distinction between old and new, big and small, traditional and innovative.
In the past this would have pointed towards mergers and acquisitions, with the expectation that fintech platforms would be absorbed by the likes of Citi, JPMorgan and Goldman Sachs.
However, now that both camps offer many similar products and services, a new era of collaboration between incumbents and challengers looks ripe for the creation of extended platform ecosystems that merge all services into one application.
The collaboration between traditional banks and fintechs has recently been explored in Finextra Research’s ‘The Future of Fintech 2020’ report. For more information and to download, click here.