FinTech is everywhere. It powers ecommerce sites, banking apps, and food delivery platforms, operating behind the scenes in a way that is virtually unnoticed by those who utilise these services. But just who are the organisations responsible for delivering the financial services on which we rely?
The FinTech Unwrapped report by Sifted features insights from industry pioneers who are delivering infrastructure solutions. These enablers are helping to liberate incumbents from being held back by legacy systems, while also supporting challenger banks by giving them access to technology stacks that previously would have had to be built from scratch. This modular, banking-as-a-platform approach to financial services is opening up the industry to a world of new possibilities.
The impact of COVID-19
For consumers and businesses alike, the COVID-19 pandemic resulted in a shift to an almost entirely digital way of managing financial services. For those slow to embrace the move to digitisation, the impact has been far more severe. The COVID-19 pandemic pushed almost all transactions online, accelerating the need for organisations to implement cashless solutions. Companies still heavily reliant on taking cash have been hard hit following the World Health Organisation (WHO) recommendation to make contactless payments whenever possible to reduce virus transmission rates. But while ATM transactions and cash payments are way down, online shopping, banking app installs, and contactless payments have soared globally, as many people access FinTech services for the first time.
As it has become more difficult to visit a bank, customers are migrating to digital finance solutions to manage everything from budgets, to loans, to mortgage applications. With limited options available for in-person meetings to discuss finances for the foreseeable future, many will continue to utilise these products and services online even as the pandemic’s impact begins to subside. In order to keep pace with this change in behaviour, improvements to infrastructure may be required to ensure the transition to digital is as frictionless as possible.
Banking on a collaborative approach
It’s not only businesses and consumers who are still getting to grips with FinTech. The banking industry itself has been somewhat wary of new entrants offering more appealing products and services; however, more progressive banks are realising that collaborating with FinTechs can liberate them from the legacy systems and infrastructures holding them back.
As our CEO, Anders la Cour explains in the report: “Banking has been a tech-heavy industry for ages. The Banks’ basic architecture derived from a time when you had monolithic systems with an in-house server. The design of these systems, especially the dependency and complexity that comes from years of system upgrades, means that for a bank today to deploy new software in an agile, easy way and apply best practices is impossible. Their mindset has shifted over time as they realised they could not fix this alone and internally. Four years ago, a lot of banks had this mentality that they could do everything themselves, and didn’t need help from anyone, but many banks tried to overhaul their legacy infrastructure and ended up finding it too hard.”
The good news for incumbent banks is FinTechs are able to deliver financial infrastructure via a banking-as-a-platform model at low cost, compliantly and securely, across a huge range of products.
Behind the curtain
As the financial ecosystem continues to evolve, it gets more and more complex. Banks need FinTechs, and FinTechs need banks – and both parties are now beginning to recognise this new normal.
Due to initiatives like Open Banking regulations in Europe, improvements in API technology and banks’ growing frustration with their own systems, both are becoming more willing to support each other. This means more white label solutions are being developed, providing improved services for end users without them ever having to see what is ‘behind the curtain’. Frankly, the vast majority of end users don’t care how it works, as long as it does work.
While focusing on improving legacy banking infrastructure may not be deemed as exciting as other FinTech innovations to enter the market, investors are moving away from backing startups that are touted as the ‘next big thing’ and toward those that operate quietly behind the scenes.
The FinTechs delivering banking-as-as-platform solutions are able to provide their clients, such as Payments businesses and Banks, with a way to extend their value proposition, passing on benefits to their customers – all while being completely invisible. Financial infrastructure is, and will always be, a vital part of the ecosystem, and through collaboration, rather than competition, the entire industry can reap the benefits.
To download the full report, visit sifted.eu