Dec 4, 2020

Payment tech has become an ‘arms race’ for banks

Banking
Marqeta
covid-19
William Girling
2 min
Payment tech has become an ‘arms race’ for banks
A new report from Marqeta characterises the post-COVID-19 banking environment to be an ‘arms race’, one that few organisations are fully prepared fo...

A new report from Marqeta characterises the post-COVID-19 banking environment to be an ‘arms race’, one that few organisations are fully prepared for.

These findings and more form a continuation of Marqeta’s ongoing research into how the pandemic has altered the sector’s priorities (read more on part one here).

Surveying 200 European banking executives, the company found an overwhelming majority (94%) agreed that more advanced technology would enable greater competitive advantages, as well as a broadened range of choices and better flexibility for customers.

However 84% believe that legacy infrastructure is stifling innovation, particularly at a time when pressures such as industry scrutiny and customer need are already at unprecedented levels. 

Staying relevant

Although the ongoing contest between incumbents and challenger banks has yet to produce a clear victor, there is some evidence to suggest that the only barrier preventing the latter from usurping the former is proof of longevity. 

The superiority of digital banks’ customer experience and technology has been attested by The Economist Intelligence Unit; trust remains the ace up traditional banking’s sleeve, but it won’t last forever. To stay ahead, the industry will need to embrace wholesale digital transformation. 

“The likes of Uber, Amazon, and Deliveroo, have set the bar when it comes to expectations around payments; having a slick and convenient way to pay has become a fundamental part of the customer experience,” said Ian Johnson, Managing Director Europe at Marqeta.

“Banks seem to be vying with each other to rapidly develop and launch new payments experiences to stay relevant and gain an advantage over rivals.”

Keeping up with digital

It should also be noted that the impediment of legacy technology is not a disadvantage shared by digital native banks, which make full use of cloud computing to keep their operations lean and agile.

Delaying the transition from legacy to digital can create a host of problems, including poor integration between old and new technology (62% of Marqeta’s survey reported this), incohesive or siloed payment platforms (55%) and lack of ability to customise (46%). 

Despite this a slim majority (58%) state that they are uncomfortable or unwilling to break from the status quo, even though industry consensus seems to coalesce on the wisdom of such a move. 

For some this originates from negative experiences with past implementations of new technology (44%), yet Johnson emphasises that they must overcome this aversion:

“Banks must break free from the shackles of legacy technology and embrace more agile systems built for the digital era. By harnessing technologies such as modern core banking and payment platforms, banks can innovate at the pace required to deliver new payments experiences to the market.”

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Jun 17, 2021

Zafin: Banking is now in the era of the tech ecosystem

Zafin
Banking
Technology
Digital
3 min
FinTech Magazine holds a Q&A session with John Smith, EVP Ecosystem at Zafin, on the evolution of banking and its future as an aspect of tech ecosystems

The development of tech ecosystems is placing the future of post-COVID banking in jeopardy. At a time when Big Tech can replicate the functions of traditional financial institutions, what can banks do to retain a grip on the market?

John Smith, EVP Ecosystem at Zafin, has a few ideas. A SaaS cloud-native product and pricing platform for financial institutions, Zafin is preparing the next generation of banks to cope with this precise challenge.

Smith is responsible for the strategic and tactical management of the company’s ecosystem, including the creation of new business models to support growth and differentiation. We asked him four questions:  

Q. Have the events of the pandemic caused an irreversible shift in the digitalisation of banks? If so, is COVID the sole cause or are there other factors?

It’s a great question and one that I am asked a lot. Without a doubt, the COVID-19 pandemic has driven a significant shift in the acceleration of digital. In fact, I’ve seen some estimates show there to have been as much as four to six years of digital adoption growth since the initial lockdown started. 

While the pandemic may be the primary reason for this growth, two other drivers include fintech disruption and the high costs of operating a traditional retail bank. Both of these factors have caught the attention of banking executives as they set their minds on accelerating digital transformation with a focus on high return, low risk. 

Q. Some commentators believe banks must learn from Big Tech in order to survive. Do you agree? Please expand. 

I agree completely; we’re living in the era of the ‘ecosystem’. All the seismic shifts we’re seeing in technology, be it aggregation, embedded finance, DeFi or hyper-personalisation are all enabled by the foundation of an ecosystem.  

When financial institutions work with a strategic partner like Zafin, which has made the strategic investments in a best-in-class ecosystem, they’re able to capitalise on opportunities more quickly and safely, and will be better positioned for growth now and at the other side of the pandemic. 

Q. What are currently the obstacles to adopting Open Banking? Is it more likely to 'take off' in some regions rather than others?

I would argue that Open Banking has been in the US for some time and will only continue to grow there. By definition, Open Banking is about the secure sharing of financial information that customers are aware of and have authorised. Under that definition, we’re seeing aspects of this well underway even though its full potential remains to be seen.

Third-Party Providers are a natural outcome of Open Banking, whereby they can create propositions beyond what a bank normally does to enable banking functions such as payments, borrowing, saving and so on. Once again, some of these are already present through industry-led initiatives, whereas regions such as the EU have taken the pathway of regulation such as PSD2.  

The industry-led initiatives we’ve seen in the US have also had the added advantage of guard-rails that regulatory bodies like FFIEC and CFPB provide. There are also other technology-led initiatives such as API definitions that are set out through the FS-ISAC. 

I would argue the future of Open Banking in North America will be through the natural evolution of the guidelines and API definitions that have been published, as well as the natural progression of industry initiatives. 

Q. Are there any other bank tech trends you'd like to discuss? 

Coreless banking. Zafin has been pioneering some of the work around externalising functions out of the legacy core to drive a more ‘fintech nimble’ bank, while not having to deliver a ‘heart and lungs’ core bank replacement. 

Real life examples of this include moving some of the core functions of a banking system, such as product and pricing to a platform like Zafin. Origination, onboarding, KYC, risk, and compliance are all other examples of externalising banking functions for added agility.

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