In FinTech Innovation, Size Isn’t Everything

Considering how quickly the pace of change is in today’s corporate payments and banking space, there’s almost no way a bank can go it alone when it comes to staying agile and ahead of the trends to best serve their clients.

Finastra, the newly-formed FinTech from the merger of Misys and D+H, is positioning itself as a partner to the FIs that, according to Finastra Global Head of Payments and Cash Management Matthew Williamson, are often struggling to keep up. Williamson spoke with PYMNTS about some of the most disruptive forces, from RegTech to APIs, that are promoting a nature of collaboration between the banks and FinTechs.

When Misys and D+H merged, news announced earlier this month, it created what they say is the world’s third-largest FinTech company. Its size, Finastra said when announcing the merger, will enable it to respond more strategically to client and partner needs. But, Williamson said, size isn’t everything in this business, especially when it comes to agility.

“We are a large organization. We’re now at 10,000 employees,” he said. “But just because you’re large doesn’t mean you know everything. And things are moving so fast.”

That has often been a challenge for traditional banks, who, while large and able to deploy resources for payments innovation, are often held back by regulations and budgets to truly embrace FinTech innovation. But a culture skeptical of some of these emerging technologies, too, plays a role in banks’ inability to stay on the cutting-edge of providing adequate banking services to clients, corporates included.

Williamson recalled one cross-border payments FinTech, for instance, that took market share away from traditional banks because it allowed corporates to use channels other than those FIs to move money globally — a concept he said the banks, unconvinced that such a service would gain traction, thought was “hilarious” at the time and ironic, because the company was actually using the banks themselves to move money for clients.

“That really hits the nail on the head on how banks have been struggling the last 10 years,” Williamson said.

The same response of skepticism occurred with API technology, he added.

“Over the last 18 months to two years, banks have gone from having no interest in APIs to suddenly, ‘Who has APIs?’” he said.

There may be rising interest among banks to embrace innovations, but Williamson said, in many ways, they are struggling to offer emerging services. Cross-border payments is one, but Williamson said another is faster payments.

“Banks have to enter the [Faster Payments] scheme relative to the geographic area they’re in or partner with another bank,” he explained, adding that FIs are starting to take on that friction as the industry explores use cases in the corporate banking and payments arena.

“Faster Payments is derived from a retail space, and [banks] are seeing how they can leverage that in a corporate space,” he said. “It’s been for their higher-end corporate clients, but as time goes on and adoption rates increase, the cost of adoption will  go down.”

As payments are going global and getting faster, banks have also had to contend with the rise in RegTech, too.

“Corporates are now starting to demand it,” Williamson said. “In your private life, you can move money around and buy things in three clicks or less. Now we’re expecting that in our work lives.”

That has tasked banks with bringing greater efficiency to their security and compliance offerings, he continued.

“Corporates started to push back and say, ‘Why can’t I do this? Why do I need multiple logins, for example, to manage my corporate account with one provider?’”

Amid this massive sea change of innovation and industry evolution, banks are juggling the constraints of regulatory requirements and other factors that make it difficult for an FI to develop innovative cross-border payments or faster payment capabilities in-house.

“Over the last 10 years, there’s been such an explosion” of innovation, he said. “Things develop very quickly, and a bank cannot keep up.” By the time a major corporate bank may actually be able to create a new solution — by the time it’s ready — it’s already obsolete, he said.

Traditionally, banks have looked to overcome this hurdle through mergers and acquisitions.

“But it fails, because you never truly integrate,” he said.

So while, in previous years, Williamson said banks were reluctant to believe that FinTechs could truly disrupt the market, they’re finally waking up to not only the value of that disruption, but of partnering with the disruptors.

“Now, they’re looking at who they can collaborate with. Who is making the right marks in the corporate banking space, for example, that we could partner with to leverage their technology and their customer base?” Williamson continued. “Banks realize that they may be losing market share, they may not be dominant, but they will retain the fullest wallet in that space.”

Finastra similarly is embracing this new culture of collaboration, and now that APIs are having a booming moment in the financial services world, that focus on partnerships has grown.

“We’re completely embracing the API world,” he said, pointing to Misys’ launch of Platform-as-a-Service that is now a part of Finastra and opens up the company’s technology and infrastructure to developers, even to the competition.

Finastra may be large, but as banks have shown, size isn’t everything — and, in some cases, size may actually work against you to stay on top of FinTech innovation. Opening up technology via API not only fosters collaboration between banks and FinTechs, but, Williamson explained, it means even the smallest companies or individual developers can create the next big thing within Finastra’s ecosystem.

“It will be a small group of bright people that comes up with the next big thing or the defining moment in payments,” he said. “And they could be developing that within our own platform.”

“The past is the past, and the future is now constantly evolving,” Williamson added. “And all banks and corporates will have to be able to adapt to that evolution.”