To gain new strength, strengthen the core.
Sound advice to any Pilates enthusiast, and to banks looking to tap into the potentially lucrative markets in Latin America through digital means. As it turns out, when it comes to transforming B2B and B2C transactions, these traditional financial services providers could use a little help. That’s especially true in markets like Latin America, where the movement to embrace and promote new payment technologies can lead to greenfield opportunities for financial institutions (FIs). The advent of APIs and platform banking models shows a sea change underway for firms, one well beyond the confines of traditional banking services.
Going it alone — and building banking platforms from scratch or cobbling them together through existing technologies — is inefficient at best, expensive at worst. It’s also a form of betting heavily on one option (private equity [PE] mindset), as opposed to investing in and spreading risk across a set of options (venture capital [VC]).
In an interview with PYMNTS’ Karen Webster, NovoPayment CEO Anabel Pérez stated that, when it comes to linkups between FIs and FinTech companies (such as her own firm), innovation is a key goal, but works best when it strengthens the most basic proposition(s) of a bank — among them cash deposits and client relationships. APIs have given rise to platform economies, where developers can create new products and banks can tap into those new capabilities quickly, without building it in-house or buying a FinTech to do it.
Bankers today, Pérez said, would do well to bet on technology partnerships that can generate value and preserve customer relevance in the immediate term, rather than build their own or even invest in those startups with the expectation that — at some point down the road, perhaps via an acquisition — things will dramatically change. That shift in thinking requires a new way of examining the returns on those innovation investments, too, she said.
“Some bankers still think that investing $10 million and two-plus years to modernize their own tech is better than spending a half a million to go live on a more flexible platform in months,” Pérez said.
APIs, Bridging The Gap For FIs
Traditional FIs must grapple with the vagaries of their legacy systems, and inadequate interoperability and middleware, that have persisted for decades. As such, they have difficulty in serving new clients who might, for example, require payment functionalities that incorporate new solutions, such as mass payouts or fast fund access — flexible payment models that stretch beyond the abilities and confines of banks’ mere web portals. That’s, in part, because the needs of the clients themselves change as they participate in platform economies.
Against this backdrop, partnerships can generate revenue for banks and FinTech firms alike. Banks can mollify pain points, say, with enrollment/authentication and account management — and, of course, the daily rigors of satisfying compliance mandates. Pérez told Webster that the proper combination of private, partner and open APIs can help banks bridge the gaps to tap into the Latin American (and other) markets, with the added — and often overlooked — benefit of cutting the cost of delivering some services by 40 percent or more.
In recent months, NovoPayment launched a developer hub devoted to Latin America, with dozens of APIs on offer — spanning functions such as enrollment, transactions and compliance — to help widen banks’ respective digital ecosystems across markets and use cases. The hub model offers the aforementioned APIs in sandbox mode, so that users are able to test innovation before deployment. The company also partnered with Visa earlier in the year to facilitate B2B transactions in Latin America.
Broadening reach while strengthening the core remains a critical dual push for FIs in an age where, as Pérez noted, loyalty takes a backseat to innovation. Take into consideration the recent findings of a survey via Ovum, which found that 80 percent of corporate treasury professionals in countries that lack real-time payment infrastructure noted that they have considered moving their banking relationships in the past year.
With such loyalty evaporating and consumer experiences consistently raising the expectations of business users, time is of the essence. Pérez said NovoPayment is seeing particular interest in partnering to deliver new customer services among Tier 2 and Tier 3 banks, for whom partnering should be a clearer choice. However, as she told Webster, some banks erroneously think they are cutting edge by dint of technology that is already falling by the wayside.
“They do not understand the power they have to gain new customers,” she said. “Banking by app … is just a surface approach. They may be accommodating new interfaces and updating the way they provide [information] to consumers, … but they may also be underestimating the relevance and importance of the platform economy and, by extension, the platform banking model.”
The banks know, continued Pérez, that “they need to overcome a lot of internal obstacles and challenges.” By leveraging existing systems with APIs (and with NovoPayment), she said, “they can innovate and integrate more quickly. If [FIs] go off and do it themselves, it is going to be costly.”
That’s especially true in an environment where compliance continues to evolve, and where adopting narrow solutions are likely to prove as both half-measures and, ultimately, more expensive.
Moving To A VC Mindset
As Pérez noted, “banks typically do not have a venture capital mindset when looking at technology partnerships, they have a private equity mindset … they are always looking at the bottom line over long-term value.” However, the true cost of a new bank investment must be measured, too, in terms of time and impact to the customer.
“It will be impossible for many banks to achieve a transformation model without a FinTech,” she said, even for some larger incumbents. The white-label aspect of platform banking represents an ideal option, she told Webster.
Amid the embrace of collaborative partnerships, and APIs, Pérez mused that other mindset shifts for FIs in Latin America may reap benefits, too, as normally conservative operators should be encouraged to acknowledge, learn from and even celebrate mistakes. Not too far-fetched, she said, in a future where job titles might be reframed, and a bank executive might point proudly to their title as one that seeks to continuously enhance FI/customer relationships: “I’m in charge of value creation.”