Is the weak link in alternative banking cross-border payments? 

I have several friends in the FinTech world whose views I respect, and one of those is Steve Lemon, a co-founder of Currencycloud. He recently sent me this viewpoint, which I think is worth sharing. Enjoy!

 

Is the weak link in alternative banking cross-border payments? by Steve Lemon, VP, Corporate Development and Co-Founder of Currencycloud

In one of Chris’ recent blogs he questioned whether deposit accounts will disappear. A question born partly out of the fact that his friend does all of his ‘banking’ through PayPal, and the rise of neo-banks giving people easier access to alternative accounts. But accounts like these highlight problems facing the banking world at the moment, one of which being the exorbitant FX rates.

His argument also raises the (well debated) question about whether, with new ways to ‘bank’, traditional institutions will disappear and become something like the flip phones of the past – gone but not forgotten?

Deep roots; strong hold?

Just as flip phones evolved into what we have today, I believe that banks will change: the way they work will be heavily driven by what customers want, rather than customers taking what they can get. Spurred on by developments like open banking and AI, there will no longer be ‘traditional’ banks, but rather a hybrid of various fintechs and banks.

The news that PayPal is about to offer its clients banking options by partnering with smaller and larger banks is testament to this mixture - where traditional meets new. The optimal word here is partnering. As Chris has mentioned time and time again, banks do thousands of things okay, while thousands of fintechs do one thing extremely well. Joining together could bring about a winning formula: one for change.

This will see banks moving to the ‘centre’ of the payments ecosystem as mere wholesale providers of transaction services, with a ring of specialist fintechs around the outside providing bespoke and feature rich services to the end user. These customers will become increasingly transient, picking and choosing what, when and how consume services and from whom. This will help create an environment that is ripe for innovation, one that can adapt and change depending on customer’s needs and wants. The fact that Transferwise has become the first non-bank payment service provider to be granted a settlement account with the Bank of England’s Real Time Gross Settlement (RTGS) system will have also given banks pause for thought.

A winning formula

What’s more, we can already see the results of this partnering in play with the likes of Starling Bank, Token, TrueLayer and Railsbank - to name but a few – capitalising on opportunities presented by PSD2 and Open Banking. Starling Bank, for example, announced it’s Marketplace which provides customers with direct access to financial services and products securely on their phone. Not only does this include their normal ‘bank account’ but also investment options, thanks to collaboration with Wealthify.

Token has also given rise to more accessibility, through its ability to not just give banks a simple and quick path to Open Banking compliance, but also to deliver multi-banking to their customers.

These developments suggest that the world of payments is becoming less segmented. Though it still leaves the question of cross-border payments and whether they are the chink in the armour of ‘new banking’?

Change is afoot

As cliché as it sounds, a chain is only as strong as its weakest link. And when it comes to innovation in B2B banking, the weak link comes in the form of inefficiencies in cross border payments.

Today, sending or receiving money overseas is an expensive, opaque and slow process, still riddled with hidden and unexpected fees. And while innovations in banking are great, with cross-border B2B transactions expected to exceed $218 trillion by 2022, up from $150 trillion this year (2018), the world truly continues to  get smaller and businesses cannot avoid making or receiving international payments. These inefficiencies can then have a major impact on business, and their ability to fully leverage innovations.

One possible solution is to allow the integration of various third-party services into banks’ offerings to create new products or enhance existing ones, as seen being done with the above examples. This will effectively make the delays with cross-border payments a thing of the past.

When all is said and done everything else can happen at the touch of a button, so why do we still have to wait days for our money to play catch up?