In the opening scenes of “The Graduate,” a (supposedly) successful man whispers in Benjamin Braddock’s ear the key to the future: “One word: plastics.” Fast forward 50 years, and that single word could be recast: “One word: FinTech.”
The premise is the same no matter the verbiage. Technology’s inexorable march marches on, and the newest wave is FinTech — the disruptor of the way financials services are rendered and the key to how those services are to be reimagined. And amid the reimagining, are banks doomed? Must technology and banks compete in a zero-sum game?
Not necessarily. In the latest installment of PYMNTS’ Topic TBD series, PYMNTS’ Karen Webster and Entryless CEO Mike Galarza said the keyword that kept popping up amid discussions about tech — and what the banks can do in the face of ever-multiplying, ostensibly nimbler FinTech firms — was “trust.”
As Galarza offered: “It’s no longer about whatever databases you have within your company handling records that are going in and out, but its really more about the relationships that those applications allow … There are business processes that are automated” that had once been done manually. So, technology, said Galarza, is indeed changing the actual nature of transactions — down to how they are done at the most basic level.
Such disruption and transformation can transcend use cases, said the executive, across B2B, B2C and P2P transactions. It may be that the consumer-facing interaction has been altered most visibly, said Galarza.“The process itself is what has changed,” he declared, offering up the example of Apple Pay for the transaction, which brings the phone into play in the stead of cash or card. Conversely, added Galarza, “the B2B transformation hasn’t happened that fast” as the means are not quite there yet, having not been embraced by enterprise, which is still clinging to checks and ACH. Thus, added Galarza, there remains a ”huge opportunity” to transform the B2B space via technology.
And to extend the discussion to P2P, Webster noted that there is much innovation within this space. Companies such as Venmo are gaining traction, and Zelle is entering the fray in 2017 — a marked effort by banks to be competitive. Could, Webster asked, P2P be a font of disruption — but also an opportunity for banks?
Yes, contended Galarza, because in P2P “you are talking about trust,” between users and also the sharing of data that extends across debit cards and back account information — but that information is being secured through a third party (the bank or financial institution).
The level of trust between two parties involved in the P2P relationship, said Galarza, boils down to not even thinking about such issues as “well, do we really need cash?” There is, and needs to be, trust that transactions and the applications across which they occur will be legitimate. Technology is increasingly allowing for choice on both sides of the relationship (the sender, who can choose to send in one form of payment, and the receiver, who can choose to be paid in a certain currency, for example).
The end result — eventually — said Galarza is “there need to be extensions of applications where you transact in value. Not necessarily bitcoin or in dollars, but value.” To get there, transparency tied to transmission is crucial, Webster and Galarza agreed, as individuals, by and large, remain uncomfortable with technology to move funds but do trust their banks, as studies have shown.
There’s also another trend afoot, said Webster, who pointed to investments via a consortium of venture capitalists into a deposit-taking bank in New Jersey, with the express purpose of providing banking services to FinTechs who want to offer banking services but who don’t want to become a bank.
Banks have a measure of competitive advantage with high levels of services, he said, against a backdrop where companies and individuals still place faith in the United States and the dollar. “You need to have a banking license, and you need to have a bank that will enable you to move that money legally,” he said. And, he added, it does take time to establish bona fide relationships across the payments continuum (thus setting up challenges for enterprises seeking to disrupt banking in general).
Even with bitcoin, said Galarza — and the transactions that are not dependent on currencies or backing of a central government (that ensures money is legal tender) — “there’s not enough trust” to embrace those payments alternatives wholeheartedly, said Galarza.