Prajit Nanu is the CEO at InstaReM, a digital cross border payments provider and one of the largest in Southeast Asia. InstaReM operates in Asia, Australia, Europe, Latin America, The UK and USA. Here Nanu shares with us why banks need to partner with fintech companies.
Innovations in technology have revolutionised the financial industry, with fintech solutions being the biggest disruptors benefitting both consumers and businesses. With new digital financial services companies noticing a rise in customer interest, the demand for fintech has increased and now, the banks are eyeing a piece of the pie.
Some traditional banks have been trying to compete with fintechs by building departments in-house dedicated to technology in response to the growing competition. JP Morgan in 2016 is a good example of this, spending big on fintech solutions and building digital services in-house. However most recently, partnerships with fintechs have been banks’ preferred method of operation - with many ‘big’ banks collaborating with innovative digital-only partners to roll out packaged product offerings and solutions.
Partnerships are the best options for banks because they are shackled by their legacy cultures and infrastructures. Due to certain way of doing things for a long period of time, it’s often hard for banks to move out of their comfort zone and unlearn a legacy of decades. For banks to take innovation gambles, they need agile and flexible fintech firms – hence why, partnerships with fintechs have become a must.
Traditionally, banks are not wired to think like fintech companies, which won't benefit them in the long-term, especially in this age of prominent digitalisation. If a bank isn’t looking to incorporate and implement the latest technology, its customers will move to a competitor that is, making partnerships with fintechs are both essential and beneficial.
Benefit one - Simplicity
There are many benefits of partnering with a fintech company, simplicity being the first.
What makes partnerships simple is many fintech businesses operate on a plug-and-play technology, which means these can easily be plugged into bank’s existing systems. Because of this, we’re entering the API economy which can best be described as an exchange of value between digital providers and digital consumers. This will revolutionise banking even further with the efficiency and speed with which payments will be processed.
Benefit two - Flexibility
Many of the new digital players also operate on platform-based models. Platform infrastructure offers banks flexibility in the products that they can have built. In the past, products were rigid, banks were rigid, and, in a way, customers were trapped. Now, through partnerships with fintechs, businesses that operate on platforms, products can be much more tailored and reactive to align with customer needs in real-time. Money is now digital and fluid. Banks needs to be the same.
Benefit three- Speed.
We’re now in a time where speed and ease is everything. No matter what it is, where it is, we want simple access to it, and we want to consume it quickly. That’s ultimately what all financial services providers need to be deploying. Collaborating with fintech companies can enable banks offer the speed that consumers crave. What slows bank services down are the complexities that are in place due to their legacy infrastructure. Take data for example, with a traditional model, banks commonly produce a tremendous amount of data manually. However, fintech solutions offer payment services that process data automatically resulting in a faster service.
How PSD2 can help this work
Fintech companies must be transparent with potential partner banks and be clear on how they can add value to banks and their customers. Both sides have to consider themselves as partners and not competition. The upcoming second payment services directive (PSD2) will help encourage this. The new regulation will require traditional banks operating in the EU to provide third-parties with access to customer information and data that was previously only available to banks.
Essentially, PSD2 will increase the quality of services delivered to customers and offer transparency. Customers will have the opportunity to choose services that cater to their specific needs, which will encourage and make it easier for banks and fintech companies to work with each other and use each other's resources for mutual benefit.
It’s a no-brainer for banks to work closely with innovative fintech companies. At InstaReM, we work with banks based in Asia and Europe that recognise these benefits of the bank-fintech collaboration. Although, this collaboration model is challenging for both banks and fintechs to provide better services, it also gives both parties an opportunity to improve and learn from each other.