The fight for customer wallet is taking on new levels of ferocity as fragments of banking are taken on by financial technology (FinTech) and big technology (BigTech) firms. At Sibos 2017, this battle was apparent on both technological and cultural levels, across many of the presentations and panel debates.</p> Although the threat of disintermediation from business lines has been a concern for financial services players for some years, recent product offerings by large digital businesses have made the challenge more real. Apple’s June 2017 announcement of a peer-to-peer (P2P) payments feature and Facebook’s expansion of its Messenger P2P payment system overseas may be limited to users of their ecosystems, but the scale and reach of BigTech firms means their moves into the financial services space are being carefully monitored by incumbents.</p> “I take those announcements really seriously,” said Paul Camp, head of cash and trade for financial institutions at HSBC</strong>. “I will caveat that by saying I do not think those firms want to be regulated like banks, but I take them seriously.”</p> Competition from non-traditional sources is matter of policy in many major markets. The European Union’s second Payments Services Directive (PSD2) and the UK’s Open Banking Initiative both mandate use of standardised open APIs to facilitate access to bank customers’ transaction and account data.</p> These APIs allow third parties to access customer data held by banks, acting as payment initiation services providers (PISP) or alternatively account information service providers (AISP), if they are given permission by the customer.</p> “Do you feel there might be an open season for US banks coming into your space?” wondered a member of the audience at the panel debate, ‘API in financial services: The key to the future?’</p> “It’s not just the banks,” said Damian Richardson, head of payments strategy and innovation at the UK bank NatWest</strong>. “There are a variety of firms that could take advantage of APIs, but likewise UK banks could also use PSD2 APIs for use in their cash management strategy in Europe for example. It is early days and we will see how it develops.”</p> Hearts and minds</strong></p> Customer-centric banking has long been a mantra for the industry, driven by customer-relationship management systems in the late 1990s but always challenged by product-led, siloed technology architecture. In particular, data had to be re-aggregated from multiple systems in order to provide the banks and the customer with a consolidated view of their relationship.</p> Through APIs, both banks and third parties should now be able to offer a far higher level of service, and also go one step beyond existing aggregated services by capturing a customer’s entire portfolio of assets and transactions across institutions.</p> “APIs are the building blocks for a digital strategy,” said Saket Sharma, chief information officer for treasury services technology at BNY Mellon</strong>. “Traditionally banks have developed APIs largely for internal applications and use, not exposing them externally. By now extending APIs outside the firm, BNY Mellon is moving beyond an application-centric approach to a solutions-centric – and ultimately customer centric – approach, focusing on capabilities and adding real value to the end-user.”</p> One risk is that BigTech or FinTechs are more able to deliver new services than the banks. Their ability to innovate with technology and derive value from data potentially allows them to quickly identify opportunities to sell services, and to develop better services than banks. However, there are doubts about the capacity for smaller tech firms to scale up their offerings.</p> “The window of opportunity that FinTechs had during the period from 2006 to 2015 has mostly closed,” said Andrei Kirilenko, director of the Centre for Global Finance and Technology, Imperial College Business School</strong>. “The large financial institutions survived the crisis, digested regulation and built an enormous war chest at zero interest rates. You can see that the rhetoric around FinTech has changed from disruption and revolution to collaborative outcomes.”</p> Many banks are already taking advantage of this strategic change by partnering with FinTech firms to deliver truly customer-centric service.</p> “There is a good match,” Elisabeth Rochman, financial services chief technologist at Hewlett Packard Enterprise</strong>, noted. “Banks have millions of customers, but need to deliver better customer experience. FinTechs offer great customer experiences but don’t have those customers. As a recent report from the World Economic Forum (WEF) stated, FinTech is no longer a threat and BigTech is causing a greater disruption.” BigTech won’t have it all their own way, Rochman suggested, noting that banks have customers’ trust while BigTechs have a conflict of interest in becoming banks.</p> The emerging picture</strong></p> However, true partnership between providers also hinges upon a cultural shift that will enable user experience to reflect customer demand. BigTech platforms such as Amazon, Facebook, Uber and Etsy provide an intermediary service between buyers and sellers, drivers and passengers, readers and writers. In contrast, the traditional competitive environment determines that banks only push proprietary products and services.</p> “That mindset has changed a lot,” said David Watson, head of digital cash products at Deutsche Bank</strong>. “If someone else can deliver a part of the value chain better than I, and provided that I am comfortable that the experience will benefit my client, I am happy to provide 80% of a service, and bring in a startup to offer the other 20%, and have us all talk together.”</p> According to Watson, Deutsche Bank is already offering products and services from other banks, FinTechs and non-banks, through its portal, on the basis of client demand. This level of interaction between banks and FinTechs is welcomed by both sides, but hurdles to long-term relationships remain.</p> Investment by banks into FinTech firms can strengthen the smaller partners, but there are risks of cultural clashes that can terminally damage working relationships. If FinTechs and banks are to join together effectively, banks must ensure they can embrace their partners without smothering them.</p> “I’m not keen on investment from the banks, because they become more focused on the state of the FinTech company than the state of innovation that company is delivering,” said Pamela Pecs Cytron, CEO, Pendo Systems</strong>. “Small companies need to reach beyond the banks and get investment from venture capital funds.”</p> Banks are quick to point out that partnerships can be rewarding. As Cytron acknowledged, “There are companies that need the backbone of a major bank to help them grow.” Equally, existing bank onboarding and procurement processes often need to be adjusted to better suit the needs of both parties.</p> “We’re not perfect, but we have worked hard to reduce our onboarding time to a matter of weeks, because start-ups can’t wait for months while we onboard them,” said Umar Farooq, head of digital channels, analytics and innovation for treasury services and head of blockchain for the corporate and investment bank at JP Morgan</strong>.</p> The end game</strong></p> Many BigTechs already have scale and advanced technology to meet bank customer needs effectively, including the big data analytics capabilities to offer customised services on a global basis. To match or surpass their rivals, banks will have to adapt their business models to deliver a truly positive customer experience.</p> To avail themselves of the most innovative technologies, banks are likely to have to partner with FinTechs at some level. Integrating those offerings into their own – either through partnership, investment or acquisition – will be challenging unless banks can adapt their culture and processes to support their smaller partners while allowing them to continue to innovate.</p> Open APIs can help with this process and be both the trigger for competition and a facilitator of integration between financial services firms in order to help banks evolve into digital organisations, but ultimately the change must be a cultural one, led by the c-suite. ANZ Banking Group CEO Shayne Elliott</strong>, for example, has been very public about his desire to create a fully digital bank.</p> Leigh Mahoney, head of wholesale digital transformation, digital banking at ANZ Banking Group</strong>, noted his CEO’s commitment.</p> “This has to be led from the top,” said Mahoney. “The leaders have to live and breathe it.”</p>