FinTech and payments innovation are upending the system, causing some to question whether banks can actually continue to thrive in a world of blockchain and mobile wallets.
Especially in the world of B2B payments, traditional financial institutions are far from achieving a reputation of spearheading technological innovation, instead remaining firmly rooted in legacy processes and infrastructure.
But a new report from Deutsche Bank released this month says there’s hope, and that hope lies in the ability for banks like itself to forge strategic alliances with the B2B payments disruptors.
“Digitalization has come in overwhelming waves, driven by the growth of eCommerce — first in the B2C and now in the B2B space — and the proliferation of smart devices,” the bank said in the introduction of its report, “FinTech 2.0: Creating New Opportunities Through Strategic Alliance.” “Collaboration between incumbents and new players will be essential to fully comprehend the effects (both positive and negative) of technological developments on the industry’s risk profile.”
But this can’t happen without a significant paradigm shift in the way these players think of themselves. According to Deutsche bank, this means changing the mindset from one of competition to one of collaboration.
The B2B Factor
A key point driven home throughout Deutsche Bank’s latest whitepaper is the idea that it is now B2B payments’ time to experience the same technological shifts seen in B2C commerce and payments.
“Particularly in the greenfields of the B2B space, the earlier banks enter this new realm of services, the greater their opportunity to influence market developments and set industry standards,” the report notes.
But the bank also acknowledges the youth of B2B FinTech innovation. The space’s massive revenue value anticipated throughout this decade, however, means banks can no longer afford to turn away from the impending market sea change.
According to Deutsche Bank, B2B payments innovation will be driven by CFOs and treasurers that are adopting disruptive payments technologies in their own personal lives.
Room For Everyone?
The introduction of nonbank players, alternative lenders and FinTech startups comes at a time when businesses are beginning to demand services from their banks that their institutions cannot fulfill.
With this mindset, it would seem that these disruptors are positioned squarely in competition with the banks. But according to Deutsche Bank, there are several factors that suggest the greatest potential for success in the market is through collaboration.
For instance, the report noted, many of these new market entrants do not want to become an official bank due to the regulatory burden. But new rules governing the payments ecosystem — like the Single Euro Payments Area, for instance — have actually fueled other players to innovate within the payments space, allowing banks to maintain the burden of compliance.
Meanwhile, FinTech players are a bit more willing to take on risk following the financial crisis, Deutsche Bank said.
“FinTechs, in contrast, have evolved in a more creative and nurturing environment, free of the burden of bank regulation and expensive, complex legacy systems,” the report said.
That doesn’t mean innovators are free from the restraints of regulatory compliance, however. The German bank concluded that with FinTech players able to experiment more liberally with payments innovation and with banks able to maintain regulatory compliance, a partnership between these two worlds can lead to new payment solutions that ease friction and stick to the rules.
“The expectations of retail and corporate clients are higher than ever,” Deutsch Bank stated, “and are broadly consistent across various sectors and contexts.” These customers want efficient, real-time, flexible solutions. They want their FinServ tools to be accessible across devices, to be individualized and to be intuitive, utilizing artificial intelligence and machine learning.
Payment and finance solutions in the B2C arena already meet these criteria, but in B2B payments, corporate treasurers will fuel the same evolution, the report concluded.
For banks and FIs to usher in the “treasury of the future,” as Deutsche Bank described it, they must focus on their core competencies and identify a FinTech partner to enhance their capabilities for corporate customers.
“By combining their strengths and creating synergies,” the paper concluded, “forward-looking FinTechs and banks can be at the cutting edge of these changes and, together, lead the advance into the digital age.”