February, 8th 2022 | 4 min read

After tech-savvy Electronic Money Institutions (EMIs) have stolen such a large chunk of their market share, traditional banks have every right to beware of geeks bearing gifts. But we’re an EMI, and we come in peace.

 

We don’t see any profit in a war between established and digital banking; instead we propose an alliance. Reluctant as we rivals are to admit to it, we need each other. And so do our customers. The future of financial services does not belong to one or other; it lies in partnership, mutual profit, and a focus on what each of us does best.

 

Uncomfortable truths

 

It’s no secret that customers have been steadily deserting traditional banks in favour of digital-first challengers, a trend that accelerated after the Great Crash of 2008. While the traditional banking sector was forced to turn its energies away from modernising legacy systems and towards meeting new regulatory obligations, the nimble, digital challengers moved in. 

 

In the UK, which has one of the most mature fintech sectors on the planet, the top four high street banks lost almost a quarter of their market share in the decade from 2009. This migration has picked up pace during the pandemic, with challengers and fintech tripling their share of the credit card market while growing their loan books by 50 per cent. 

 

Where a digital leader like the UK goes, other countries are sure to follow, especially with the open banking revolution making it easier than ever to switch accounts, and for challenger banks to provide innovative mobile and digital services. 

 

But the grass is not necessarily greener in fintech’s garden, and our sector has some uncomfortable facts of our own to confront. Companies like MoneyNetint are building the payments infrastructure of the future — in our case, enabling fast, low-cost, reliable international transfers. But fintechs face a practically insurmountable challenge if we try to do this solely on their proprietary platforms because they have to obtain a local banking licence in each jurisdiction, partner with in-country banks, and connect to local payments infrastructure. The only alternative to achieve true international reach would be to onboard the whole world onto our platforms. 

 

That’s why fintechs and EMIs are forming partnerships with the traditional banking sector, along with providers like Ripple who can circumvent international borders through the blockchain, to give us worldwide scale. But in partnering with us, banks are not taking part in their own overthrow: this is evolution, not revolution…and it is creating a future where banks and fintechs can thrive by doing what each does best. 

 

Playing to our strengths 

 

In these strange days of working from home and having to navigate people’s preferences for Teams, Zoom, or WhatsApp, we’re all familiar with the problem of platform proliferation. That’s exactly the kind of future we want to avoid for financial services, where people are trapped in “walled gardens” and can’t transact with people or entities that use an alternative, competing platform.

 

Sure, we’re building a new payments infrastructure for the world, but we still need those all-important “nodes” on the network — customers’ bank accounts. For banks, the value of these partnerships is in remaining relevant without having to build rival infrastructures themselves; instead, they just piggyback on fintechs’ platforms. And that benefits both parties, enabling each play to their particular strengths.

 

By allying with fintechs and EMIs, traditional banks can keep their role as payments processors, but on a much larger scale than before; meanwhile, their partners will shoulder much of the burden of customer service and support. This is a costly and time-consuming business for banks and, let’s face it, digital firms are better at it. 

 

Banks shouldn’t see these partnerships as simply protecting their market share and customer base. These relationships should enable banks to deliver a range of new services, including low-cost international transfers for their retail and business customers, providing them with new revenue streams, greater reach, and fresh relevance in a market where customer expectations are changing so rapidly.

 

Maybe a few years ago, the idea of allying with a fintech would be fraught with risk, adding a layer of uncertainty between them and the customer, and posing existential problems about compliance, fraud, AML and KYC. But that’s no longer an issue: fintech is a rapidly maturing sector where regulatory oversight is as strict as for traditional banks. What’s more, fintechs already use the same  monitoring as banks, or have already developed best-in-class systems themselves..

 

Partnership will make us powerful, enabling us all to streamline our operations and focus on delivering more agile, faster, innovative and more comprehensive services with greater appeal to customers. Together, we can help businesses reach new markets anywhere in the world, while delivering a range of other benefits such as more efficient, more cost-effective business processes And as for EMIs eating your lunch? We’re offering banks a banquet. There are more than a billion unbanked adults around the world, and many more with extremely limited access to financial services. This is a huge untapped market, with more than enough business to go around. 

 

Together, digital and traditional financial firms can make a lot of money while doing a great deal of good for the world. No one needs to surrender: this new era of partnership begins not with a white flag, but an olive branch. 

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