The post-Sibos consensus is that collaborating as partners yields better results in developing technology than battling as competitors.
“Consortium,” “joint venture,” “alliance,” “pilot.” These words were popular at Sibos this year, highlighting a different kind of interaction between banks and fintechs. And they seem to express a new attitude in the financial sector toward dealing with new technologies.
“Thank heavens for disruption!” says Alex Manson, global head of transaction banking at Standard Chartered, noting that disruptive technology makes it possible for banks to reinvent the client experience and boosts efficiencey. The shift in mind-set has taken hold on both sides. “Banks increasingly ‘get’ the urgency of incorporating such technology into their toolkit to improve themselves dramatically,” says Manson. “In the meantime, fintechs, facing the challenge of client acquisition and scale, have grown less juvenile, wanting to work with banks as opposed to replacing them. This bodes well for shared experiences, learning and cooperation going forward.” At J.P.Morgan, “We’re focused on striking the right balance of partnering with the fintech community while also utilizing technologies we’ve built in-house,” says Emma Loftus, head of global payments and foreign exchange.
Still, there are threats other than fintechs. “The real competition will be nonbanks, such as high-tech companies, retailers and telcos,” says Falk Rieker, global head of the International Banking Unit at SAP. “They have the network; and, having experienced digital transformation in their industries already, they have a much better understanding of digital customer experience and other critical success factors.” Rieker says banks will have to show agility, innovation and customer focus to succeed, adding, “Teaming up with fintechs will benefit banks but will not be enough.”
At the same time, the era of cautious experiments between a single fintech and an individual bank is over. The general attitude on blockchain is now much more collegial, with both fintechs and banks increasingly relying on group tests and group solutions. ANZ, for example, is active in several such groups, according to Mark Evans, managing director of transaction banking. These include the Interbank Information Network, a pilot with J.P.Morgan and RBC on correspondent banking. They also include a consortium that emerged from a cross-border payments trial with Wells Fargo that has since expanded to a multilaterial trial by Swift; the results were announced at Sibos.
“In correspondent banking, we frequently communicate with counterparties to validate transaction information,” Evans says. “Blockchain has the potential to provide a more effective way to share that information.” ANZ joined with Westpac, IBM and shopping-center company Scentre Group to test blockchain in commercial leasing. The bank also worked with authorities in Hong Kong and Singapore on a trade-finance blockchain. “No bank can innovate alone in this space,” says Evans. “All payments have another bank at the other end; it’s necessary to build a solution with others so it can be adopted by the industry.”
Vivek Bajaj, global vice president of Watson Financial Services Solutions for IBM, sees three ways to deal with a competing fintech: “Buy it to acquire the technology, copy it or consider a collaboration.” For IBM, increasingly that means teamwork. The tech giant is a huge proponent of “hackathons,” brief but intense development contests with an exclusive contract as the prize. Bajaj says cooperation is not limited to distributed ledgers; it’s key to anti-money-laundering and shared know-your-customer (KYC) capability development, too.
Heightened global regulations around KYC and consumer privacy have sparked synergy between banks, compliance experts, and fintech/regtech partners with technology to turn KYC into a digital-identity service—a true strategic asset, says Sarah Clark, SVP of global product management at Mitek Systems. “Banks have realized this; and we are seeing collaboration, sandboxes and innovation in this area at a rate that is impressive,” she adds. “For us, it is invigorating to be part of that processs.”