In a new webinar, Banking Circle and The Paypers bring together a panel of experts to discuss the threats facing FinTechs and Payments businesses as a result of the risk-averse strategies that big banks are implementing around the world, asking the question: what are the risks of de-risking?
Hosted by Sarah Francis, Payments Advisor and Senior Consultant at Polymath Consulting, the panellists discuss how banks are engaging with today’s FinTechs and payments businesses, what’s really at the root of de-risking, and how to get the best from a banking relationship.
- Mitch Trehan, UK Head of Compliance & MLRO, Banking Circle
- Mark Hewlett, Director of Product & Infrastructure, GC Partners
- Jonathan Bell, Group CFO, PXP Financial
- Mike Southgate, Chief Operating Officer, Hamilton Court FX
You can watch the full webinar on demand here, or read on for our summary of the key takeaways.
Are FinTechs too complex for banks to serve?
Big banks have been executing de-risking strategies – withdrawing from markets and geographies – for decades, but that escalated in the wake of the 2008 financial crisis and continues today.
Sarah Francis, Payments Advisor and Senior Consultant at Polymath Consulting, asked the panel whether today’s FinTechs and payments businesses are simply too complex for banks to understand and thus to commercially engage with.
According to Mike Southgate, Chief Operating Officer at Hamilton Court FX, the newer players in the market today are not necessarily revolutionary in the services that they offer or more complex in terms of business model – but they are moving at a greater speed.
“The reality is, they’re doing it a lot faster, with a lot more volume, for a much lower cost. And so, whilst I think the bank fundamentally understands their business model and what they need to do, whether they can keep up with them and their demand is a different matter,” Mike said.
Mitch Trehan, UK Head of Compliance & MLRO at Banking Circle, explained that banks are limited by both risk and cost to serve.
“There is a de minimis threshold, whereby when banks are providing this offering there’s a certain amount of control environment that’s required, and implementing any control environment has financial costs with it,” Mitch said. “I’m not sure complex is necessarily the right word,” he went on to say, “but it is certainly filled with more risks than having a direct relationship
with the consumer.”
Mark Hewlett, Director of Product & Infrastructure at GC Partners, said that the key factor for banks in servicing FinTechs is whether they have the necessary expertise and scale to do so. “As the markets mature, there are a lot of people now that understand [the FinTech] business within banks… and there are some that actually now understand that they don’t, and have stepped back from serving the sector.”
How can FinTechs get the best out of bank relationships?
Jonathan Bell, Group CFO at PXP Financial, advised businesses to communicate fully and clearly with banks and to purposefully to set about building a positive relationship.
“If somebody is reviewing the information you’re providing, and has big question marks or would say that there are lots of things missing, that does not get the relationship off to a good start. I think it is about trying to build that trust and confidence at the very early stages,” Jonathan said.
Mark Hewlett echoed that sentiment, adding: “When asked for a presentation about your business, present it as if it’s going to the Chief Compliance Officer, because ultimately that is the only person you need to get a green light from.”
Banking Circle’s Mitch Trehan advised FinTechs to “find the right banking partner” who understands and has the appetite to serve the respective business model. Those banks who analyse risk with a heavy focus on historic data are likely not to be best suited for businesses driven by innovation.
“If you want to innovate, if you want to do something, you have to find a bank with the appetite to do that,” he said.
Watch ‘The risks of de-risking: The impact and opportunities of bank de-risking strategies’ here for the panellist’s full insights.