2022 – A blossoming love affair between banks and fintechs

By Dean Wallace, Director of Product Management at ACI Worldwide

The way we bank has changed significantly over the last two years, never mind decade. In lockdown, we turned to tech to help manage our lives. New figures show more than 5 million UK consumers now actively use open banking. And further research has found 54 per cent of people tried a new way of paying during lockdown and 21 percent of people tried online shopping for the first time.

This is placing established financial institutions (FIs) under increasing pressure to modernise and consolidate their payments offerings to meet changing customer demands. But given the scale and entrenched nature of their own legacy systems, many are simply unable to build and deploy their own solutions at the pace or scale required to stay competitive.

Banks are not blind to this fact. And despite wide coverage of how they refuse to play ball with new market entrants, there is a blossoming love affair between the old guard and new. In fact, our recent study – Defining and Building the Next-Generation Payments Hub – found 65 percent of banks say the most important driver behind modernising their payments systems is to have open APIs that enable access to a broader range of partners and vendors, and to simplify different payment types.

Clearly, many are seizing the opportunity to spark a revolution in modernising their payments infrastructure. Global pandemics aside, we now live in a world where both the quantity and quality of alternative payment methods is rising in lockstep with consumer expectations for smooth and safe transactions. As such, banks are keener than ever to connect to the new opportunities provided by fintechs. Working with new players to build open APIs will pave the way for larger and less agile FIs to keep up with the pace of change coming from the modern payments world.

This is increasingly business critical for banks. Our study further found a third of FIs now generate over half of their income via payment processing, with 86 percent of large banks making more than 30 percent of their revenues through this channel. And yet, 48 percent of bankers said their current legacy systems no longer meet customer needs or are flexible enough to deploy new alternative payment methods.

FIs are very keen to tread the right path. With long-term global payment strategies being updated regularly, banks are on the lookout for a solution that fits their needs. Indeed, almost all banks (90 percent) view payment hubs as pivotal in tackling unseen payments-related challenges; such as solving the pain points brought about by legacy systems and future proofing the institution as a whole.

Real-time payments, API-first design, and cloud-ready solutions that can be deployed in a public, private or hybrid model, along managed service options, are fundamental requirements for most banks today wishing to increase speed and flexibility whilst reducing operational and compliance concerns. At the same time, banks need to be able to support their legacy systems using a well-thought out roadmap to migrate to a new ecosystem.

The financial services sector is at a critical juncture. The effects of lockdown combined with increased regulation, and rapidly evolving consumer behaviours means FIs are rethinking their business models. Inevitably, creating modern payment hubs delivering against a need to succeed, made all the more possible then by increasing technical ease to embrace partnerships with fintechs.

So, despite a history of wariness, FIs are now coming in from the cold. Increasingly keen to partner with young innovative fintechs to augment their customer offerings, they recognise their value not only as drivers of much needed modernisation, but also as trusted service providers who will help them blossom to maintain their competitive edge for years to come.