By Dominic Broom, Head of Treasury Services EMEA, BNY Mellon
Fintech is becoming an ever-greater force in the transaction landscape, bringing new capabilities that are enhancing the payments experience and fuelling client expectations for better, faster and more innovative solutions across the payments spectrum. To date, the greatest level of change has been felt in the retail space, where consumers in a growing number of countries across the globe now regard real-time payments as routine. Furthermore, multi-channel devices are allowing purchases to be made at the touch of a button and at the payee’s convenience (over 20% of online sales in the UK are now made during a commuter journey), as well as enabling unbanked populations in emerging markets to access financial services for the very first time. Fintech is therefore transforming our relationship with payments on a global scale.
Yet while new entrants have been able to make considerable head-way in the retail business (with household names ranging from PayPal and Apple Pay in purchasing, to Wonga in borrowing and Funding Circle in investments, for instance), successfully launching new innovative solutions on the corporate side, where transactions are generally far more complex, is a whole new ball game.
Technological innovation is underway in the corporate banking space, however, with many banks already leveraging new developments to provide added-value and enhanced client offerings. New payment hubs, which have the flexibility to far more easily adapt to evolving market and industry needs than legacy systems, are providing banks and their clients with robust, future-proof platforms. Advances are also enabling the reams of complex data and information held within banks’ systems, to be effectively analysed and interpreted; helping banks to unearth behavioural patterns and trends from which new client insights can be attained. Managing data in this way allows banks to build more effective, client-centric solutions.
Investment in the fintech arena is soaring and interest in the sector is gaining real momentum (some 4000 start-ups are currently registered as active, with more than a dozen of these valued at over US$1 billion). Undoubtedly, further change is on the way, and the fintech business has the corporate sector firmly in its sights.
The potential that fintech innovation could unleash in the world of corporate payments has not gone unnoticed by banks. In the wake of the financial crisis, heightened regulatory requirements meant they were required to dedicate significant focus and resources to adhering to compliance specifications; yet they are now increasingly turning their attention to exploring the world of fintech and the exciting possibilities it could bring.
With banks’ deep-rooted and trusted standing as payment patriarchs, they cannot be rivalled in their understanding of what is required – and what must be addressed and navigated (including regulatory specifications), in order to truly propel the corporate payments space into a new fintech-driven era. Their growing involvement in the fintech business is therefore being welcomed by many fintech start-ups, whose key area of expertise lies in understanding the complexities of technology, rather than the intricacies of high volume, secure payment processing. Likewise, banks do not expect to become masters of fintech alone.
In recognition of the value each industry has to offer, banks and fintech start-ups have begun combining their skillsets; working together to probe and exploit technology and its capabilities in efforts to uncover means of enhancing transactions. By working closely with fintech companies, banks can explore the use of new technology capabilities within a safe, test environment; learning how it works, where improvements need to be made and how it could be applied practically to a functioning global payments system.
One area of technology innovation in particular that has been highlighted as a possible game-changer for the finance industry is the blockchain; the technology behind the cryptocurrency Bitcoin. The blockchain is a distributed ledger that is cryptographically secure; recording and storing every step involved in every transaction irrevocably on a shared network, and without the requirement for maintenance or administration by a central authority.
A growing number of banks are investing in the exploration of blockchain technology, with the belief that its distributed ledger properties could, for example, be used to significantly enhance speed and efficiency, lower costs, and aid regulatory oversight and security. Indeed, if developed to its full potential, the blockchain could potentially help to eradicate money laundering.
Were bank-fintech partnerships to overcome the challenges of implementing blockchain technology in their live operations environments, it could completely transform global payments. System capabilities would be far more advanced and streamlined, while developing countries would be granted improved access to financial services (which, of course, could help to benefit society as a whole).
Fintech is the dominant factor shaping the transaction banking space, but the path to the future of payments has not yet been laid out, with technology developments and the full extent of digital capabilities still to be uncovered. Yet without a doubt, fintech is poised to make its mark on corporate payments, and banks must ensure they are spearheading the fintech movement if they are to succeed and thrive in the new digital payments world. By fusing their expertise with the tech know-how of fintechs, banks can become firmly immersed in the fintech scene and help to ensure technology’s true potential can be unleased on global payments.
The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.