Fintechs & banks must collaborate to undo disintermediation

Fintechs and banks must collaborate to reverse disintermediation trend, says a new report by BNY Mellon, in collaboration with Aite-Novarica Group.

The study, entitled The Forces Disrupting Payments revealled financial institutions (FIs) servicing business clients are being disintermediated by fintech payment providers. The data also shwed that banks are slowing the trend by partnering with larger banks who have already built connections to fintechs.

The findings of the report are based on feedback from a survey of 790 employees of midsized and large organisations in seven North American and European countries.

As a result of the findings,  community banks and credit unions continue to be at risk of disintermediation – when businesses circumvent their banks by engaging directly with fintechs – with only a third of businesses surveyed believing their FIs fully understand their payment needs. In fact, 62% of the business respondents said they are already working with a fintech provider.

The report alshowed that 87% of companies have made considerable investments in improving their organisation's paytech and processes. Regardless of this, those still planning to make an investment is still very high (88%), presenting a wealth of market opportunities for fintechs and FIs that come to market with comprehensive payment services that can cater to client needs.

Banks still the most popular partnership option

However, businesses also said that they would prefer to partner with another bank than have to seek third-party fintech providers. Smaller banks especially  are finding it beneficial to partner with larger FIs that have already vetted and validated the numerous fintech payment options available.

Speaking about the findings,  Isabel Schmidt, Co-Head of Global Payments at BNY Mellon, explained, "Banks need to solve for points of friction as their business customers show a greater expectation for robust, real-time capabilities," says. "Our experience is that clients who partner with financial institutions that are connected to fintechs and their capabilities stand a greater chance of success."

"The threat of disintermediation is the impetus for a lot of innovation among banks as they collaborate with fintechs on new ways to drive growth," said Erika Baumann, author of the report at Aite-Novarica Group.

She added, "This leads to a market opportunity for fintechs, as well as FIs that have reacted to market demand by developing robust services to fill the biggest gaps in their payment strategies."