Financial services will look to collaboration and consolidation in 2019
Trying to predict next year’s biggest trend is always a potential banana skin waiting to happen. Not least in fintech and finance.
At the beginning of this year, I said Open Banking was something that would really take off. And while I still think Open Banking will be a huge, transformational success, perhaps I, like many others in our industry, jumped the gun on that occasion.
For next year, one thing I am certain of is that genuine collaboration will be a necessity for the high street banks, while consolidation will be rife within the payments sector.
Picking collaboration as next year’s top trend might sound like an obvious thing to say, but it has, until now, largely been a failure – particularly when it comes to fintechs and banks working together.
Past “innovation” partnerships between banks and smaller fintechs have typically fallen at the wayside, with newly created products and services hindered and let down by their execution. This has been down to a number of factors, whether it be legacy infrastructures, outdated and long-winded processes, or people and staff resistant to change. Because in a company with thousands of staff members, innovation can be hard to embed across the board.
But genuine collaboration is beginning to take centre stage – and it’s largely to do with the growth of digital-first banks such as Starling, Monzo and Revolut (which was recently granted a European banking licence). These banks, as we’ve seen all year, have increased customer sign-ups, and value. Meanwhile, you also have the likes of established financial institutions such as Goldman Sachs moving into this space with the launch of Marcus. This has established players worried, despite none of these entities succeeding in attracting full-time users – for now.
Banks now need to move quickly and build their own propositions, which they hope will stem the potential rise of the new challenger.
What we’re finally seeing, and will see more of next year, are joint budgets and ventures between financial institutions and fintechs, which will then be launched independently as standalone businesses. Therefore bypassing the processes, thinking and people that mean organisations are slow and lumberous.
These new fintechs will have a larger degree of autonomy, unshackled by the burden of larger organisations and will combine an already established consumer base with the agility fintechs enjoy. The likes of Unicredit has already launched an iPhone only-bank called Buddy Bank, while a number of other tier one banks such as RBS are looking to launch their own, separate offerings.
Consolidation in payments
While banks are looking towards collaboration, within the payments sector, consolidation is likely going to be the flavour in 2019. Paypal is in the process of acquiring iZettle, pending approval, while rumours continue to grow that Western Union Business Services is in the process of selling up to another payments provider. There are also a number of big international players eyeing up other acquisitions. This is driven by the realisation by many that while the payments market is not a winner takes all scenario, scale makes things an awful lot easier.
Elsewhere, Mastercard and Visa are also encroaching on this market, with both parties looking to repurpose their payments networks to diversify and create alternative revenue streams to protect and pre-empt any impact that Open Banking may have on their traditional businesses.
And on that Open Banking note, this leads us back to where 2018 started. Yes, it was a disappointment, but adoption was always going to be a slow burn. One thing was clear from this year – we can’t rely solely on the technology to lead the way.
We need banks to demonstrate Open Banking in practice, with tangible benefits to the customer. If collaboration is going to be the saviour for high street banks, then Open Banking will also play a key role here. We have already seen the beginnings of this and we’ll likely see more of this next year.
What was I saying about making predictions again..?
By Stephen Lemon, co-founder, Currencycloud