A new report has revealed two-thirds of business clients don’t have confidence in their current bank’s payment processes provision, and 62 per cent are already working with a fintech provider in an ongoing atmosphere of competition between traditional financial institutions and fintechs.
The report, The Forces Disrupting Payments, found financial institutions working with business clients are being cut out of the economic process by new fintech payment providers. Carried out by BNY Mellon in collaboration with Aite-Novarica Group, the research shows banks are slowing this trend by partnering with larger financial institutions that have already built new connections with fintechs.
The report illustrated that banks, community banks and credit unions continue to be at risk of being cut out when businesses deal directly with fintechs, explain the authors. Only a third of businesses surveyed believe their existing bank fully understands their payment needs and 62 per cent of business respondents said they are already working with a fintech provider.
This so-called ‘disintermediation’ is amplifying a sense of competition between traditional financial institutions and fintechs, they say, but it also enables opportunities for innovation and cooperation, with both sides having much to gain.
Businesses reported they would rather partner with another bank than have to seek third-party fintech providers, say the report authors. Smaller banks have found it beneficial to partner with larger financial institutions that have already vetted and validated fintech payment options.
"Banks need to solve for points of friction as their business customers show a greater expectation for robust, real-time capabilities," says Isabel Schmidt, Co-Head of Global Payments at BNY Mellon. "Our experience is that clients who partner with financial institutions that are connected to fintechs and their capabilities stand a greater chance of success."
Banks must collaborate more, say BNY Mellon and Aite-Novarica Group
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.
"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," says Erika Baumann, author of the report at Aite-Novarica Group. "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."
The report also reveals that 87 per cent of businesses have made significant or somewhat significant investments in improving their own organisation's payment technology or processes.
It was found that 88 per cent still plan to make an investment, presenting an abundance of market opportunities for fintechs and financial institutions working together, say the authors.