Celent Model Bank Awards 2017: Banking Products Innovation

Celent Model Bank Awards 2017: Banking Products Innovation

This is the next article in a weekly series highlighting trends and themes from Celent’s Model Bank submission process. For more information on how the Model Bank Awards have evolved, see the first two pieces from my colleagues, Dan Latimore and Zil Bareisis

This week’s article focuses on Model Bank entries in the Products category. Part of the criteria for this category is that the solution needs to be in production and demonstrating business benefits. The Products entries for 2017 fall broadly into four sub-categories:

  • Payments Product — for launching the best consumer or business payments product.
  • Lending Product — for the most impressive consumer or business lending or collections initiative.
  • Open Banking — for the most impressive API strategy and results so far.
  • Product Innovation — for demonstrating the ability to launch multiple innovative products.

The majority of submissions in the Products category came from banks in developing markets, with only a handful from large global banks. The Model Bank award submissions came from Argentina, Germany, India, Korea, the Philippines, Poland, Russia, Singapore, South Africa, Spain, Taiwan, Turkey, UAE, and USA.

The Products category submissions were impressive indeed:

Payments: The submissions in this area focused on modernizing existing banking and payments infrastructure. With consumer expectations growing for real-time transactions and unified information across channels, banks are layering new capabilities onto legacy frameworks. Capabilities include accelerated check clearing, enhanced mobile wallets, simplified fraud controls, and streamlined charitable donations.

Lending:  Possibly threatened by alternative lenders, banks in this sub-category are improving the speed and convenience of loans for micro and small businesses. Some entries focused on expanding application channels, both digital and physical. New digital channels include SMS/text, ATM and Facebook. Physical channels include the local coffee shop. All of the submissions featured faster loan decisions through advanced analytics and paperless (or almost paperless) loan closings.  

Open Banking: Open Banking APIs have moved beyond hackathons and proofs of concept to production implementations. While some banks are rolling out Open API development portals in response to regulations like PSD2, the Model Bank candidates in this category are using APIs to improve the customer experience. The submissions represented two approaches to Open Banking. The first is the use of open APIs to connect directly with customers and developers, enabling transactions including B2B payments, personal remittances, loan disbursements, and e-Commerce refunds. The second is the use of open APIs as the core foundation for digital-only banking models. Third-party developers then create value-added client-facing applications using the bank’s exposed API services.

Product Innovation: This sub-category features partnerships with both traditional financial technology and start-up Fintech firms to make banking more convenient, create new offerings, improve customer service, expand a bank’s digital footprint, and personalize marketing offers.  

Want to hear more about the Celent Model Bank winners for payments product, lending product, open banking, and product innovation? Join us for the 10th annual Innovation and Insight Day on April 4th in Boston. In addition to revealing the winners of all the awards, Celent analysts examine the trends that are driving innovation in Banking. I look forward to seeing you there.

Model Bank 2017: Small Business and Corporate Digital Innovation Themes

Model Bank 2017: Small Business and Corporate Digital Innovation Themes

This is the fifth article in a weekly series highlighting trends and themes from Celent’s Model Bank submission process. For more information on how the Model Bank Awards have evolved, see the first two pieces from Dan Latimore and Zil Bareisis. This particular article is focused on innovations in small business and corporate banking:  two critical market segments for financial institutions as they seek revenue growth and relevance in the evolving digital B2B marketplace. 

When evaluating this year’s Model Bank submissions that are targeted at small business and corporate clients, we identified a number of excellent initiatives in each of the five overall categories:

    Customer Experience

    Products

    Operations and Risk

    Legacy Transformation / IT Platform Innovations

    Emerging Innovation

For these two segments, the Model Bank award candidates come from Europe, North America, the Caribbean, Asia Pacific and the Middle East. Despite the wide geographic spread of the submissions we received, certain common themes became evident that are important to highlight, 

Enhancing client experience is paramount: Banks are intensely focused on how to deliver solutions to clients in ways that are convenient and easy to use in order to meet the emerging expectations of business users based on their consumer experiences with technology. Creating a consolidated point of access for all corporate banking services using portal technology that eliminates the need for multiple logins and security procedures was just one of the types of initiatives that were submitted.  Mobile and tablet access are becoming mainstream channels for employees of business and corporate clients to effectively manage their daily workload no matter where they might be located.

Improving digital channels is not enough to succeed: The initiatives that demonstrate significant quantifiable benefits to banks and clients are those that address the inefficiencies in the way that bank employees interact with their clients but also involve the elimination of paper-intense, manual workflows both for the client and the bank. From the use of videoconferencing technology to access experts in trade finance for advisory services to the replacement of faxed instructions with digitally signed transactions initiated on mobile phones, banks are finding innovative ways to contribute to their own efficiency while also improving client productivity. Another critical element of the digitization of these processes is speed. Automation enables faster decisions (for example for credit approval) and this provides business with a superior service and the ability to manage their businesses rather than managing their banking relationships. These initiatives drive revenue growth and loyalty because the bank’s services provide quantifiable benefits to clients that are seeking to leverage technology advances in order to more effective manage their working capital.

Reinvention in Small Business Banking: I was struck by several of the initiatives that represent an entirely new way of thinking about how to enable entrepreneurs and small business owners to succeed. Rather than tweaking traditional banking solutions that are designed for consumers or larger businesses, several of the banks submitted initiatives that reflect an entirely different way of meeting the needs of small business clients. Recognizing that the needs of entrepreneurs and start-ups fall well beyond the services that a bank traditionally offers (i.e. credit, payments, cash management), a few innovative banks have attempted to reinvent business banking by offering a complete, integrated package that combines traditional banking activities with non-banking services that extend beyond even the adjacent types of solutions that banks typically make available through partnerships (e.g. payroll services). The goal of these packages is to offer a business owner every piece of business functionality and technology they would need to grow their business. What makes these solutions especially impactful is that they are designed from a business owner’s perspective and don’t reflect a bank-centric view of how the client should manage their business. 

I hope this brief description whets your appetite for more discussion on our award winners in small business and corporate banking at the 10th annual Innovation and Insight Day on April 4th in Boston. I look forward to seeing you there.

European Payments: Breathing a Sigh of Relief (For Now)

European Payments: Breathing a Sigh of Relief (For Now)

In our recently published report on Top Trends in Retail Payments we quoted a European payments professional:

“If the publication of PSD2 gave the industry a headache, then the publication of draft RTS gave it a heart attack.”

Of course, he was talking about the draft regulatory technical standards (RTS) that the European Banking Authority (EBA) has been tasked to develop for how the industry should implement Payment Serivces Directive's (PSD2) requirements for strong customer authentication and secure communicationThe draft RTS published in a consultation paper last August was indeed rather draconian. One of the key proposals was "not to propose exemptions based on a transaction risk analysis performed by the PSP” and to keep “the authentication procedure […] fully in the sphere of competence of the ASPSP [Account Servicing Payment Service Providers, i.e. banks].” The draft RTS has united the industry to an extent rarely seen before – representatives from payments, cards, e-commerce, small merchants, digital technology, telecoms, travel and industries have expressed concerns that the EBA’s standards implemented in their current form would “make online shopping much more onerous than it is today and have a wider and chilling effect on the Digital Single Market.”

Thankfully, it appears that the EBA has been listening. The final standards have not yet been published, but yesterday, Andrea Enria, Chairperson of the EBA gave a speech at the Westminster Forum, and has given the clearest indication yet that the EBA is open to changing the RTS. Specifically, according to the speech, the RTS when published will:

  • Introduce two new exemptions, one based on "transaction risk analysis" and the other for payments at so-called "unattended terminals" for transport or parking fares. Transaction risk analysis exemption will be linked to maintaining predefined fraud levels and will be reviewed after 18 months.
  • Contain some changes to the existing exemptions, such as increasing from EUR 10 to EUR 30 the threshold for remote payment transactions. However, there will be no further exemptions for e.g. corporate payments.
  • Outlaw the current practice of third party access without identification (e.g. ‘screen scraping’) once the transition period under the PSD2 has elapsed and the RTS applies.
  • Maintain the obligation for the ASPSPs to offer at least one interface for AISPs and PISPs to access payment account information. A requirement has been added requiring banks to provide the same level of availability and performance as the interface offered to, and used by, their own customers, as well as to provide the same level of contingency measures in case of unplanned unavailability.
  • Remove references to ISO 27001 and other specific, technological characteristics, to ensure technology-neutrality and allow for future innovations.

It will be important to review the details when the final RTS is published, and of course, much work will still have to be done by the industry to ensure compliance. Yet, it seems that the payments professionals in Europe may breathe a sign of relief – the heart attack may have just been averted, at least for now.

Introducing Celent Model Bank 2017 Awards

Introducing Celent Model Bank 2017 Awards
As my colleague Dan Latimore wrote in the article that began this series, 2017 was the best ever year so far for Celent Model Bank programme in terms of quantity, quality and diversity of nominations. As we went through the judging process, we felt a range of emotions – grateful and privileged to receive so many amazing stories, and daunted by the prospect of having to pick the most worthy award recipients. In the end, we are excited and confident about our selection of winners, yet we are sorry that we could not recognize so many others that clearly also deserve recognition.

Over its ten years of existence, Celent’s Model Bank programme has always changed and evolved. In the last few years we have been awarding multiple initiatives in a small number of categories – for example, last year we had four winners in Digital Banking Transformation, the busiest of seven categories. While all the awards within the category were equal, we knew that some institutions craved for more exclusive recognition. This year, we decided to take it a step further and to introduce specific named awards with only a single winner for each award.

After long deliberations, the judging panel decided to recognise 21 initiatives as winners of the following Model Bank 2017 awards:
  • Consumer Digital Platform – for delivering an outstanding digital experience for consumers. The award is open for traditional financial institutions, digital-first, and challenger banks.
  • Small Business Digital Platform – for delivering an outstanding digital experience for small businesses.
  • Corporate Banking Digital Platform – for delivering an outstanding digital experience for corporate clients.
  • Consumer Banking Channel Innovation – for the most creative use of consumer channels, or the most effective channel integration.
  • Branch Transformation – for the most compelling branch transformation initiative, including branch format innovations and creative use of live agents.
  • Product Innovation – for demonstrating the ability to launch multiple innovative products.
  • Open Banking – for the most impressive API strategy and results so far.
  • Payments Product – for launching the best consumer or business payments product.
  • Lending Product – for the most impressive consumer or business lending or collections initiative.
  • Fraud Management and Cybersecurity – for the most creative and effective approach to fraud management or cybersecurity.
  • Risk Management – for the most impressive initiative to improve enterprise risk management.
  • Process Automation – for the most effective deployment of technology to automate business processes or decision-making.
  • Employee Productivity – for improving employee training or collaboration, incentivising employees, or enabling mobile agents.
  • Payments Replatforming – for the most impressive project to improve payments back office, e.g. payment services hub implementation or cards replatforming.
  • Core Banking Transformation – for the most compelling initiative to transform a traditional core banking platform.
  • Banking in the Cloud – for innovative approaches to implement a banking platform, e.g. deploying in the cloud.
  • Banking as a Platform – for creating an ecosystem of partners via a banking platform that connects and enables third parties.
  • Emerging Technology for Consumers – for creative deployment of emerging technologies for consumers (e.g. AI, ML, API, biometrics, wearables, voice, blockchain, etc.)
  • Emerging Technology for Businesses – for creative deployment of emerging technologies for small business or corporate clients (e.g. AI, ML, API, biometrics, wearables, voice, blockchain, etc.)
  • Most Promising Proof-of-Concept – for the most promising experiment – pilot or proof-of-concept – with emerging technologies.
  • Financial Inclusion – for efforts to bring financial services to unbanked and under-banker communities.
And of course, we also kept our Model Bank of the Year award, first introduced in 2012, which recognises one financial institution that in any given year simply stands out from the crowd and uniformly impresses Celent judges.

For the time being, only the nominees will know if they won any of these awards, as we begin working with them to distill their achievements into a series of case studies. We will be announcing all winners publicly on April 4 at our 2017 Innovation & Insight Day in Boston. In addition to presenting the award trophies to the winners, Celent analysts will be discussing broader trends we’ve seen across all nominations and will share our perspectives why we chose those particular initiatives as winners. Make sure you reserve your slot here while there are still spaces available!

Channel Strategy for Corporate Banking: Is Your Bank Paying Enough Attention?

Channel Strategy for Corporate Banking: Is Your Bank Paying Enough Attention?
According to the GTNews 2016 Transaction Banking Survey Report, 91% of North American corporates are evaluating their cash management partners. Of those, 27% indicated that improving availability of online and mobile banking tools were a major reason for reviewing their bank relationships, and 55% cited the need for an improved customer experience. Clearly, these responses are evidence that large numbers of corporate clients are less than satisfied with the channel tools and the overall digital client experience being offered.  Most of the banks we interviewed for recent research on this topic are hearing loud and clear that clients are looking for more streamlined, convenient, and faster access to banking services and information.  Our recent report, Strategies for Enhancing Corporate Client Experience: The Future of Attended Channels looks at strategies that leading North American and global banks are adopting to achieve the following goals:
  • Build out integrated portals to make invisible the organizational and product silos inherent in corporate banking.
  • Simplify the user experience.
  • Establish an omnichannel approach to providing consistent data and access to transactions across channels.
  • Enhance authentication options, including biometrics.
  • Expand self-service, including the ability to securely exchange documents and open accounts and new services.
While we found broad agreement on importance of the themes described above, we identified other aspects of digital channel strategy that varied widely from bank to bank.  The graphic below summarizes those opportunities for differentiation. Celent recommends that banks take the following steps to optimizing their future investments in attended channels:
  1. Define the Digital Strategy for Corporate Banking, Not Just the Digital Channel Strategy.  In the current environment, attempting to implement a successful strategy for digital channels in the absence of an overall digital transformation strategy for corporate banking is short-sighted.
  2. Understand How Attended Digital Channels Fit into Clients’ Daily Workflow.  Product management and strategy executives at many institutions are driving prioritization in channels based on a set of assumptions about client preferences that may not be valid. Mapping those client digital journeys from onboarding to servicing to managing exception situations for each client persona is critical.
  3. Reexamine the Role of Partners.  In reality, the delivery of services through attended channels has always involved multiple partners, whether the bank has developed an “in-house” solution or offers one or more off–the-shelf vendor solutions. As demands for “non-core” banking functionality grows and technology evolves to enable easier integration with multiple partners, the importance of the bank maintaining control of the user experience layer that is seen and touched by the client becomes even more critical.
The decisions being made today about attended digital channels — whether as a part of a larger digital transformation initiative, enhancing the channel user experience, or establishing a corporate banking portal — will have a significant impact on the ability of corporate banks to attract and retain clients.

Megavendors and transaction banking: reinvesting in digital corporate banking

Megavendors and transaction banking: reinvesting in digital corporate banking
Earlier this month, Fiserv announced that it is acquiring Online Banking Solutions (OBS), a privately held provider of niche treasury management capabilities. OBS has seen a great deal of success in enabling community banks, credit unions and some regional banks with the digital capabilities needed to meet the emerging needs of more sophisticated business and corporate clients for treasury management services.  As a long-time observer and participant in this space, I think it is fair to say that most of the largest providers of financial services technology (megavendors) have underinvested in corporate banking, especially in modern, digital treasury solutions.  From a back-office processing perspective, Fiserv has a key collection of assets (e.g. PEP+, ARP/SMS) on which large banks in the US heavily depend to deliver their treasury management services.  The acquisition brings a suite of first-class front-office digital channel solutions to Fiserv that should allow it to be competitive in offering omnichannel solutions specifically designed for corporate treasury users and that consider the multitude of ways that corporates consume bank information and generate transactions. Celent believes that the winners in this space will have a broad transaction banking strategy that includes international services (cross border payments, foreign exchange, trade finance) bringing all commercial banking assets into a coherent go-forward strategy, if not a single organizational unit.  Partnerships to extend transaction banking functionality is a great step toward that end but they need to be well-defined and well-executed to benefit the providers’ clients.  In 2017, we think that other technology providers will follow suit and broaden their transaction banking solutions.  FIS has certainly made a mark with its 2015 acquisitions of SunGard and Clear2Pay.  Bringing these assets together and delivering on a next generation digital platform will be critical for FIS to meet the growing needs of corporate clients for global banking services.  Other providers of digital channel solutions such as ACI Worldwide, Bottomline Technologies, D+H, Q2 Software and others will be looking at these developments closely to understand the impact on their competitive positions. With the acquisition of OBS, there are no more niche providers of corporate digital channels left in North America.  Almost ten years after the great financial crisis when income from fee-based solutions was the salvation of the industry, reinvestment in the transaction banking business is finally happening.  

“Transforming the Landscape” – My learnings from SIBOS 2016

“Transforming the Landscape” – My learnings from SIBOS 2016

The fall conference season is a business time for us in the industry research business. I’ve finally recovered from a hectic week in Geneva, where I met with over 40 banks, technology companies, and consulting firms to discuss what’s happening in global transaction banking. This year’s Sibos theme was “Transforming the Landscape”, organized around four themes: Banking, Compliance, Culture, and Securities. A selection of Sibos session recordings is available on the Sibos website.

With my research focus of Corporate Banking, my discussions focused on three key topics.

  • SWIFT’s global payments innovation (gpi) initiative:  SWIFT announced that it had successfully completed the first phase of the gpi pilot, surprising some bankers with SWIFT’s ability to meet the first milestone so quickly. The initial objective of gpi is to improve the speed of cross-border payments (starting with same-day) and improve transparency with new end-to-end payment tracking. SWIFT staffers roamed the exhibition hall with iPads demonstrating the gpi’s new payment tracker. It remains for banks to integrate the new payment type into their corporate digital channels and to determine product pricing.​

SWIFT GPI

  • PSD2 and UK Open Banking:  Technology providers, especially those that offer core banking systems along with payments technology, are working closely with regulators and industry groups to enhance their product offerings to accommodate the third-party account information access and payment initiation provisions of PSD2, along with the UK’s Open Banking API Framework. Looking beyond mere compliance, both providers and banks are developing value-added services to capitalize on the significant disruption arising from opening traditional banking capabilities to third-parties.
  • Blockchain in Corporate Banking:  After publishing a Celent report on use cases for blockchain in corporate banking earlier this year, I was heartened to hear “real world” blockchain announcements from the big tech companies, touting their banking collaborations. Swiss bank UBS is working with IBM on a project to replicate the entire lifecycle of an international trade transaction. The FX settlement service, CLS, is building a payments netting service that will enable cash trades on IBM’s Fabric blockchain. Bank of America and Microsoft announced their intent to build and test blockchain applications for trade finance.   Although much progress is being made by blockchain consortia, banks, and technology providers, most people I talked to believe that significant adoption of blockchain for corporate banking use cases is still a few years in the future.

I’m off next week to attend the Annual Association for Financial Professionals (AFP) conference, hoping to bring back developments in the world of corporate treasury and treasury management.

The Mobile Banking and Payments Summit – Impressions from Day 2

The Mobile Banking and Payments Summit – Impressions from Day 2

A couple weeks ago I attended the Mobile Banking and Payments Summit in NYC for the first time.  There was an impressive list of experts from institutions such as JPMC, Barclays, Citibank, BNP Paribas, the Federal Reserve, USAA, Capital One, BBVA, and Moven, among others. I was only able to attend the final day, but it didn’t disappoint.  The day focused mostly on mobile wallets, with a few main points shared below:

  • Mobile wallets have been challenged by industry barriers:  The old rule of thumb with a payments scheme is that it needs to please three parties: the merchant, the bank, and the consumer.  These products and solutions have traditionally fallen short of one or more of these objectives, essentially stalling a lot of the progress.
    • There’s still plenty of fragmentation in the market:  Android is an open system utilizing Host Card Emulation (HCE), while Apple is a closed system using a secure element.  There are others beyond that, but it’s largely contributed to a lack of standardization and unimpressive overall adoption.  We know this is largely understood by banks and merchants, and many are willing to play along for the time being.
    • Consumers can misunderstand mobile wallets: Many users of Apple Pay, for example, have a poor understanding of how the system actually works, with many assuming Apple is in control of their card details.  While the system is safer than traditional cards, the perception that it’s less safe is keeping many users from adopting it.
    • Getting the marketing right is tough: Often, the mobile wallet really isn’t about the payment so much as the experience around the payment.  It might be easier or there might be a whole host of incentives like rewards wrapped around it.  The potential is there, but until recently the market hasn’t been.
  • But many barriers are beginning to fall away, and there’s hope for adoption: For years, the industry has been declaring that FINALLY this year will be the year mobile wallets take off.  The industry has been crying wolf for a long time, but there are some promising developments that hope to make mobile wallets a larger share of the payments universe.  Currently in the US, 55% of merchants have updated their payment terminals, and 70% of consumers have chip cards.  The chip card does a lot for security, but the argument is that it adds friction to the checkout experience.  With the card dip taking away from the user experience, the expectation is that mobile wallets will finally offer enough UX improvement over traditional cards that consumers might opt for them during payment.  It’s also reported that more than 50% of millennials have already used a mobile wallet at least once.  This includes Apple Pay, Android Pay, or Samsung Pay.  The growth in adoption with younger consumers is a good sign that broader adoption might not be too far behind.

My colleague Zil Bareisis has written about this quite a bit, and agrees that adoption could be driven by the emergence of EMV as well as an increase in handsets that support wallet payments.Wallets are also striking partnerships to add value, including introducing merchant loyalty, coupons, etc.The launch of Walmart Pay is a great example of a retailer applying these concepts internally, facilitating even greater adoption. For more information see any of the number of reports Zil has written on the topic.

  • Midsize institutions have a few paths to follow implementing a mobile wallet: Banks want to be a part of the adoption, but have so far taken a wait and see approach, unsure about the potential of existing wallets, and still trying to figure out what it means for them as the issuing bank. There are three primary ways a midsize or smaller bank can try to launch a wallet:
    • Building an internal wallet: This provides the most control, customization, flexibility of functionality, and control over the release schedule.  The drawbacks are that it can be a complicated task, a large investment is required, the institution needs sufficient subject matter expertise in-house, and there would be no Apple NFC support.
    • Buying a turnkey white label wallet: A turnkey solution would have the benefit of being plug-and-play, there would be some customization options, functionality would be built in, fewer resources would be involved, and the vendor would provide some subject matter expertise.  There would, however, be less control over the product, the wallet could be processor dependant, and the roadmap wouldn’t be controlled by the institution.
    • Participating in an existing wallet: For many this is the road that will result in the largest adoption.  The options are fairly universal, with Samsung, Apple, and Android offering networks here.  Its plug and play, easy to get traction, includes a lot of choice, and frictionless.  The drawbacks are mainly the lack of customization options or control over the direction of the wallet.

We often say that we go to these conferences so that our subscribers don’t have to.  This is just a short summary of the day, and obviously there was much more detail shared. We encourage all of our readers to attend these events, but will be there in case they can’t make it.

Where Will We See You Again?

Where Will We See You Again?

When the leaves start falling, it usually means one thing for Celent analysts – the conference season is getting into full swing and it’s time for us to hit the road big time.

The team is already busy at SIBOS this week, with BAI and AFP coming in a few weeks. Personally, I am looking forward to speaking on customer authentication at Mobey Day in Barcelona on October 5-6, as well as attending Money20/20 in Las Vegas on October 23-27.

Such high profile events are always great places for catching up with our clients and other industry experts. They are also perfect for getting up to speed with the latest developments in the industry, or, as my colleague Dan Latimore says, “soaking up the zeitgeist”. Dan will also be joining me at Money 20/20.

This year, we will be keeping an eye on (amongst many other things):

  • Which of the latest initiatives look most promising to (re-)invigorate mobile payments? Will it be Apple Pay and Android Pay on a browser, the networks’ partnerships with PayPal, 'Merchant' Pay, or something new that will get announced at the events?
  • Adoption of and developments in payments security technologies, from EMV to biometrics, and from 3DS to tokenization.
  • Innovations that drive commerce and help merchants, from bots to APIs that enable deep integration of payments into the merchant’s proposition. Also, creative application of analytics, whether to help merchants increase conversation rates, extend a loan, or deliver the most relevant and timely offer to the customer.
  • Where will blockchain fit into payments world? Ripple continues to gather momentum with cross-border payments, the UK is exploring the use of distributed ledger technologies as backbone for a domestic payments system, while IBM is partnering with China's Union Pay around loyalty. What other payments-related innovations can we expect from the blockchain community?

What will you be looking for? If you’ll be in Barcelona, Orlando, Chicago or Vegas, we look forward to seeing you. If you haven't registered, now's the time. And because of your relationship with Celent, you are entitled to an additional $250 discount off the Money20/20 registration fee. Combined with the Fall Final special you save a total of $725. Simply enter promocode Celen250 when you register here.

Challenging the Status Quo: Fintechs and Corporate Treasury Services

Challenging the Status Quo:  Fintechs and Corporate Treasury Services

The rapid rise of Fintech firms offering non-bank financial services is triggering what some consider “creative destruction” in banking. Recognising that technology is a key enabler for efficient treasury operations, an increasing number of Fintech firms are creating specialized solutions for corporate financial management.

Four key external forces are supporting the rise of non-bank financial services:  Economic influences, demographic changes, regulatory environment, and technology evolution.

Non Bank Financial Services

A confluence of economic influences has lowered the barriers to entry for Fintech startups. Most significantly, global interest and investment in Fintech firms has risen dramatically over the past five years.  However, only a small percentage of Fintech investment is targeted at serving large corporations, a sector ripe for investment and innovation.

As baby boomers retire, financial management staff is getting younger reflecting the demographic changes influencing Fintech growth. Accustomed to intuitive, easy-to-use technology tools accessible from anywhere, younger staff expect more in the way of treasury technology than Excel spreadsheets to streamline, digitise, and automate financial management functions across treasury and finance. This is especially true with respect to payments, one of the hottest areas in the Fintech space.

While the regulatory environment for traditional financial services firms continues to become more complex, Fintech firms benefit from an almost complete lack of regulation. Regulators acknowledge the need to oversee the safety and soundness of Fintech firms but also recognise that excessive regulation can stifle the development of more efficient financial services. Thus, regulatory bodies are working on frameworks to strike the appropriate balance between innovation and protection.

Fintech firms excel at leveraging the technology evolution to create a differentiated customer experience. Rather than serving the breadth of corporate customers’ treasury management needs, Fintech firms can cherry-pick narrow segments for their offerings.  Newer technologies such as web, cloud, mobile, big data, and artificial intelligence allow Fintechs to develop new value propositions at a lower cost than traditional development approaches.

As discussed in the new Celent report “Challenging the Status Quo: External Forces Supporting the Rise of Non-Bank Financial Services,” Fintechs are unbundling traditional corporate banking services, leveraging emerging technologies to offer new, innovative treasury solutions. But recognizing that universal banks have unrivaled experience meeting the complex needs of corporate customers, many Fintech firms are collaborating with banks through a number of different innovation models. This report is the fifth in an ongoing series of reports commissioned by HSBC and written by Celent as part of the HSBC Corporate Insights program.

Register now for the upcoming joint HSBC and Celent webinar on this topic featuring Nadine Lagermitte, Global Head of Financial Institutions at HSBC.