Conventional wisdom might hold that the great digital shift has shaken up banking, spurring financial institutions to innovate and push new offerings through digital channels.
Tom Priore, CEO of Priority Technology Holdings, told PYMNTS that not much has changed, at least for now. But the rise of open banking can and will foster a spirit of cooperation between traditional banks and FinTechs that will pay dividends for both parties, and their customers too.
The conversation was part of the continuing “What’s Next in Payments” series — focused on the question “What is a bank?”
The past few years have been ones of great upheaval. But a few things have been true of the individuals and enterprises doing business with traditional financial institutions:
“They don’t expect very much,” Priore said. These customers, he added, go to banks for specific products and services, such as credit cards and deposit accounts. The muted expectations have been borne of months of watching bank runs and the collapse of Silicon Valley Bank.
“There’s a lack of trust,” he said.
Against that backdrop, Priore said, consumers and businesses want to get paid faster, they want access to working capital — and so they’re turning to providers like Chime and SoFi to get what they want. Banks are still not prepared to deliver these innovations. Many banking executives are still struggling with the limitations of legacy architectures and technologies.
To broaden and complement the businesses they have on which they have a lock — lending, checking and deposit accounts and cards — he said that we’re entering a phase of “co-opetition” and collaboration, where banks work with FinTechs to innovate and improve the user experience.
There’s the recognition that using FinTechs in a way that considers them to be “virtual bank branches” can attract more customers through an enhanced mobile experience. A revenue sharing model benefits all parties. The branch itself is becoming a place where banks can offer “bundled services” — with digital channels in the mix — beyond the merely transactional relationship.
Asked by PYMNTS about the state of open banking, its evolution and what the impact might be on “co-opetition,” Priore observed that open banking has yet to take off in the U.S. in the ways that have already been seen in Europe.
Europe has been dominated by a relatively smaller number of banks, Priore said, while in the U.S. there are thousands of players and a diverse banking population. Regulatory and capital requirements have made it harder for banks to invest resources in open banking initiatives, which is especially the case with smaller banks.
The partnerships with FinTechs become especially valuable given the fact that some revenue streams, such as credit card late fees and overdraft fees are being capped, if not outright discontinued. By managing a single relationship with a FinTech, he said, the bank effectively has a “one to many” scenario as it broadens its customer base without incurring significant customer acquisition costs.
In the near term, he said, we’re likely to see new innovations in small business banking, which has been a segment where banks have underbuilt and underperformed, as embedded finance takes root.
For the FinTechs, he said, there’s the advantage of linking up with the banks that have the regulatory rigor and oversight in place to help obtain money transmission licenses.
“This is a very economically viable outcome for banks and for FinTechs,” Priore said.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
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