In the Fintech Fast Five, we ask industry insiders five of the most pressing questions facing the sector. In the firing line today is Pedro Pinto Coelho (CEO, Banco BNI Europa)
- What is the biggest disrupter you’ve seen in the payments industry?
Pedro Pinto Coelho
The biggest disruption in the payments industry is WeChat Pay. Through their messaging app and with the QR code technology they managed to create one of the largest payment platforms in the world bypassing banks and traditional credit card platforms. They also use the payment platform to attract more business.
- Where are banks failing in attempts to collaborate?
There are a couple of reasons for that. Firstly, most banks see collaboration as a door for losing their clients, which is obviously wrong. Banks need to work together as the banking industry is changing at light speed. As Bill Gates said back in 1990, banking is necessary, banks are not. To survive banks must change from offering all the products to focus only on products that they do best, so they need to work together not against each other.
The second reason is linked to regulators behaviour. Regulators don’t encourage collaboration between banks, an example is the fact that every single institution must do its own compliance process, KYC and AML separately, and not trust the other institution.
I’m sure that in a near future that will change as banks realised that only through collaboration they will survive.
- What do fintechs need to do to become better collaborators?
When FinTechs appeared, there was a vision that they would eventually get away with replacing banks, however, there has been a recent shift in behaviour. FinTechs have begun to realise it would be difficult for them to get clients. Even if they provide a great service and the best technology, they would have to spend a lot to bring in customers.
Instead, these technologies could be integrated into solutions which the banks need. Assuming they can be integrated within the core banking system, they can leverage the bank’s ability to be a service provider and the process for them will be much quicker.
As soon as FinTechs assume that they need banks to implement their technology and, therefore, grow, FinTechs will become better collaborators.
Banks need to work together as the banking industry is changing at light speed.
- How is the collaboration model changing the way fintechs and banks compete?
I think that banks and FinTechs should see each other as partners not competitors. I strongly believe that the winning model will be a hybrid one, so not just a bank or a FinTech. It is impossible for banks to keep up with innovation and technology, so ultimately, they will have to adjust to this new world. The FinTech ecosystem will really allow them to do so, and the sooner the banks embrace this model and start to collaborate with FinTech, the better it will be for clients. Collaboration is a win-win for every part involved.
- How will PSD2 change the game for banks?
When PSD2 becomes implemented, banks’ monopoly on their customer’s account information and payment services will disappear and that will change the traditional banking landscape. Banks will no longer compete against each other, but with everyone offering financial services.
In fact, with PSD2, bank customers, both consumers and businesses, can use third-party providers to manage their finances, while still having their money safely placed in their current bank account. At the same time banks are required to provide these third-party providers access to their customers’ accounts through open APIs.
I strongly believe that the winning model will be a hybrid one, so not just a bank or a FinTech.
This will enable third-parties to build financial services on top of banks’ data and infrastructure. They enter in the market with new ideas about how to shape the banking experience but also without the heavy compliance and infrastructure which banks are required to maintain. In fact, with PSD2 we are moving from banks to banking services.
Notice that with PSD2 not only competition within the financial sector will increase, where banks find it difficult to differentiate themselves in traditional services but also poses substantial economic challenges as banks’ IT costs will increase due to new security requirements and the opening of APIs.
To fight against it, and at the same time going towards customer expectation and increased digitalisation, many banks have already started collaborating with Fintech, focusing on customer centricity and setting up innovation labs.