Legacy FIs And FinTechs Get Friendlier To Map Change Together

As the pandemic recession and recovery call for bold, innovative fiscal action, legacy financial institutions are realizing FinTechs are more resource than rival as they maneuver in ways big FIs cannot. The PYMNTS Disbursements Tracker® explores the topic.

Banks and traditional financial institutions (FIs) are grappling with modernization or core systems at the worst possible time, but “bad timing” is often an excuse for lack of preparation.

That banks and others got caught unawares by COVID-19 isn’t the issue, because it caught everyone by surprise, from private industry to the CDC, the WHO and world governments.

But one can’t hold that “deer in the headlights” pose at a time like this. The pandemic recession and recovery call for bold, informed and innovative fiscal action. More legacy FIs are realizing that FinTechs are more resource than rival as they maneuver in ways big FIs cannot.

PYMNTS Disbursements Tracker® done in collaboration with Ingo Money explores the topic in detail, noting, “The COVID-19 pandemic has created a new emphasis on why [investment in new solutions is] necessary … especially as legacy banks’ lagging infrastructures create gaps that nimbler, mid-tier banks can fill. FinTechs that run on cloud-based infrastructure can also process disbursements and payments much more swiftly, giving them an edge over legacy FIs as businesses hunt for real-time payments support.”

It’s an insight that legacy FIs, FinTechs and their commercial constituencies can use right now.

FinTechs Helping To Future-Proof Banks

To be a FinTech is to be more adroit and technologically creative than a large FI. That’s the superpower they can bring to big banking at a time when much depends on partnerships.

“In today’s changing financial environment, bank treasury executives should be thinking about the concept of ‘future-proofing’ their offerings for their clients by partnering with leading FinTechs [that] can iterate solutions to the challenges … banks’ corporate customers face both now and continuously into the future,” Ingo Money CEO Drew Edwards told PYMNTS.

Edwards noted, “The right FinTech partner will continuously invest the time to engage and listen to [the] individual pain points corporates face and then quickly innovate subscription-based solutions that support the bank’s relationships and solve the challenges their institutional clients face.”

Using the example of “continuously expanding one-to-many gateway solutions to relevant payment types in consumers’ wallets without the need for the bank to invest in direct integrations,” he added, “Large banks by design entrench deep pillars of safety and security into their operations and offerings to safeguard extremely large asset pools and extensive capital markets and credit facilities with enterprise clients. Change is a function of evolution for a large bank, not iteration. FinTech partners can provide that iterative layer, keeping the bank current and relevant while the evolution happens at a bank’s pace.”

Paper Jams Preventing Total Transformation

Talk of digital transformation is all well and good, unless you’re still doing the paper thing. Many still are, but signs point to paper reliance phasing out fast. FIs and corporates must make sure not to get caught on the wrong side of that swing as it happens.

“Most banks, businesses and treasurers have been aware of checks’ challenges for several years. Digital technologies’ rise has boosted users’ expectations for swift payments and reduced their satisfaction with older, paper-based methods. Checks are cumbersome and costly for businesses and FIs, with a price tag of about $8 to $10 per processed check, and they can take up to 15 days to process,” the new Tracker states.

More to the point, slow and inefficient invoice and checks are hopelessly out of step with the consumerization of payments that’s overtaking the B2B and B2C worlds. Today it’s about cash flow, but not at any cost, and especially not the one thing money can’t buy: time.

“Thirty-seven percent of SMBs claimed that cash flow was their top concern in 2019, according to one recent report, but the pandemic is rapidly shifting companies’ views and priorities,” per the Tracker. “Waiting 15 days for a single check to clear can have disastrous financial consequences for these entities, making real-time disbursements a must for firms. It appears that the pandemic is breaking checks’ hold on businesses, but it is now up to their payment and treasurer partners to offer the support they need to leave paper-based payments behind for good.”