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Banks are increasingly joining forces with fintechs

Edward van Dooren

Strategic Advisor

29 June 2021

Banks are increasingly joining forces with fintechs

On Tuesday, June 29, the second day of EBAday 2021 started off with a strategic roundtable on future-proofing payment strategies. During this session, which was moderated by Marc Niederkorn, Expert Partner at McKinsey & Company, two renowned experts from the payment sector shared their visions on this topic. It was interesting to see that the experts seemed more confident regarding the presence of fintechs than a couple of years ago.

Niederkorn started the panel discussion by presenting a few slides on the importance of payment services for the banking sector. For instance, 35 per cent of the total European bank revenues come from payments. In addition, payments are the second-most frequent touchpoint with customers for financial institutions, only after social media

However, the payment revenues for banks are under increasing pressure in Europe. These are caused by, for example, declining interest revenues over the last few years and the pressure on interchange revenues. On the cost side, the increasing costs for tech investments and maintaining cash also have a negative influence on the margin. Combined with the competitive environment, this a leads to pressure on the overall profitability of financial institutions.

Future-proofing is relevant for everyone

To address these challenges, as well as to answer the consumers’ demand that payments should be seamless, frictionless, and secure, Niederkorn asked the other experts the question whether payment strategies should be future-proofed. Sara Castelhano, EMEA Head of Payments, Products and Solutions at J.P. Morgan, is very clear in her answer: “Future-proofing your company is relevant for every type of organisation. As a bank, we should be able to support our clients as they are thinking about the evolution of their business. Therefore, the payment strategies should be based on what clients and their customers want.”

Christof Hofmann, Head of Corporate and Payment Solutions, Cash Management at Deutsche Bank, adds that the payment sector has become a very strong and dynamic landscape with the arrival of big techs and fintechs. “As a matter of fact, we are already in the midst of future-proofing our payment strategies. Just look at the enormous initiatives going on in which the industry collaborates to bring relevant solutions forward, for example.”

Build, Buy, Partner’

When asked about how to deal with the complexity and the speed of change, Castelhano shares that they operate from the from the ‘Build, Buy, Partner’ strategy. “We cannot build everything ourselves and over the last few years the fintech companies have really built some exciting technology. There are more than enough opportunities for banks to start a partnership in fields like artificial intelligence, machine learning and cloud-native software. That way, as a bank, you can focus on building what is actually core to you.”

Hofmann agrees and explains that Deutsche Bank is also increasingly partnering up with parties that offer complementary services. Therefore, it is interesting to see that traditional banks are now more confident about and open to cooperating with fintech companies, instead of being more cautious about their presence in the financial world, as they were a few years ago.

Emergence of wallets

In the end, Niederkorn asked the experts how they believe the payment world will evolve in the near future. Castelhano has a clear vision: “I see a very big convergence between banks and corporates as well as a trend of going direct to consumer, which are evolving in having your own wallet to store value. For example, your car will become a place where you can store value. It basically becomes a wallet through which you can pay for your gas and tolls. This will really start creating a banking ecosystem inside a company. I believe that the role of moving money and holding customer deposits will not be limited to financial institutions anymore.”