Fintech innovation is, by its very nature, a constant force. It will continue to change the way we interact and conduct business, not least because we have only just embarked upon the first wave of exciting developments in its application for the B2B space.
− Deutsche Bank, Global Transaction Banking white paper, FinTech 2.0
Deutsche Bank has released a new white paper that provides insight into how the payments ecosystem has evolved over the last decade thanks to innovation from non-bank players in the market. The paper highlights the need for banks to welcome innovators, and concludes that cooperation, not competition, is the best approach – particularly in the B2B payments arena.
In the paper, titled ‘FinTech 2.0’, Deutsche Bank splits the innovators into two distinct groups: FinTechs, and the “digital ecosystems” – which include tech giants such as Amazon making inroads into the payments arena to improve customer experiences within their own marketplaces. Significant changes have been made to payments models within the B2C space, and with this in mind, the paper urges the banking industry to act now in order to protect its interests in B2B payments.
The opportunities in the B2B payments space are huge – with online sales estimates for B2B revenues in 2020 double those of B2C. Until recently, B2B payments have been dominated by the banks, but with non-banks using more innovative technologies that meet the demand for lower costs as well as improved efficiency and convenience, incumbents are feeling the pressure.
Despite non-banks having the advantage when it comes to being more agile than their incumbent counterparts, they often come up against barriers as they try to scale. Some have struggled to grow as they do not have an established client base, others experience issues with licensing and financial regulation. Most new offerings will eventually need access to existing payments infrastructure to deliver a consistent and reliable service as their client base grows. Standing out enough to receive funding can also be difficult in a saturated market – investment in FinTech was up by 300% YoY.
It is clear that both sides can benefit from collaboration. The banks are able to provide a wealth of market insight and experience, and new players can offer technology solutions that can enhance bank’s’ existing offerings.
Collaboration may be difficult, as the broad range of services and products banks provide are siloed, whereas FinTechs focus on a niche offering, and operate in agile and creative environments allowing all their efforts to be put into one area of expertise.
According to the report, banks are lagging behind in the skills of the internet age. Their ‘traditional’ mindset means they are hesitant to undertake activities that could negatively impact profitability or alienate their existing client base. FinTechs on the other hand, are able to develop and implement very quickly technologies that focus on the benefits for the end user, with improved access to financial services, better user experience, and flexibility that appeals to those who are immersed in a digital world on a daily basis, specifically millennials – the bank’s future clients.
Banks need to discover which areas of their businesses are ripe for modernisation and where they could partner with FinTechs to deliver products and services able to offer better value to their customers. Partnering with FinTechs could also help banks break out of their traditional financial mindsets, creating freedom to work outside of their normal corporate structures and giving them the opportunity to experiment with, and understand, new innovations.
Innovation and rapid development in the payments sector is bound to continue, but the financial industry is beginning to accept that collaboration is key, rather than viewing new entrants as the competition. By being open to forging long-term, strategic partnerships, together, banks and payments innovators are set to revolutionise the ecosystem.