Jonathan Vaux, our Head of Partnerships and Propositions, recently participated in a webinar hosted by the Payments Association and Moderated by Fiona Jelly, CEO at ComplyFirst.
The webinar discussed interesting topics regarding the current state of relationships between fintechs and banks, the role each plays in our ecosystem and the benefits that effective partnership can bring to a whole host of use cases.
Thredd were pleased to be taking part in this webinar with partner, TerraPay. Jonathan Vaux was joined on the panel by Ruben Genovez, President at Terrapay and Vijay Narasimhan, Director of Product at Tide.
Read on to discover our key takeaways from the conversation:
Mobile changed banking forever
The advent of mobile technology has fundamentally transformed the banking industry, ushering in a new era of customer experience and service delivery. While customers have largely retained their original underlying banks, they now increasingly rely on mobile apps for a more streamlined and user-friendly banking experience.
The introduction of digital payment systems like Apple Pay has spurred the development of innovative products and services, addressing areas where traditional banking fell short. This shift has been particularly impactful in sectors that were previously underserved, such as small businesses, which were often treated as slightly modified consumer accounts. Onboarding processes for these segments often struggled to meet their unique needs. Similarly, complex services like cross-border payments remained unnecessarily complicated in the traditional banking model. In response, innovative organizations have leveraged cloud infrastructure to develop specialized programs and products, offering more flexible and tailored solutions.
Traditional banks have found it challenging to keep pace with these advancements, leading to democratising access to financial services. The most significant changes have occurred in historically underserved segments, where mobile technology has dramatically improved access and service quality.
The digital inflexion point
We’re currently at a key point of inflexion for how consumers interact with money, the introduction of digital wallets and their continued adoption will give way to even more innovation.
Thredd client, TerraPay, is at the forefront of revolutionizing financial services for underserved communities through its innovative digital wallet network. Recognizing that over 200 million people living outside their country of origin face challenges in sending money, especially when recipients lack traditional banking access, TerraPay has been building a robust wallet ecosystem to bridge this gap. By connecting emerging economies to this digital wallet network, TerraPay enables the "unbanked" to receive funds directly on their mobile devices, eliminating the need for physical bank branches.
This approach not only facilitates easier cross-border remittances but also promotes financial inclusion by allowing users to "download funds" into digital containers. TerraPay's efforts extend beyond just creating a network; they are fostering collaboration between fintechs and traditional financial institutions, creating conditions for different technologies to enrich one another. As smart wallets emerge as a necessity for managing finances in new ways, TerraPay's initiatives are helping industries adapt to this dramatic shift in how consumers interact with money, potentially reaching over 600 million unbanked consumers.
Supporting SME’s, driving commerce
Small businesses have been fundamentally affected by recent shifts in banking. Over the past decade, banking for small businesses has undergone a significant transformation.
Previously, accepting card payments posed a significant challenge for these businesses, but it has now become very easy and democratized, and phones will increasingly be used as acceptance devices. Companies like PayPal have played a crucial role in making this possible.
The application and onboarding process has historically been a hurdle and remains an area ripe for improvement. However, there are now more solutions available for small businesses to build up a credit history and gain access to credit. Data derived from one service now informs another, a stark contrast to traditional banking services that operated in isolation.
Today, small businesses that do not compete in the digital economy are largely excluded from commerce. The development of digital wallets for SMEs is a collective effort that will not only accelerate domestic GDP but also facilitate cross-border transactions.
Strengthening the banking and fintech relationship
The relationship between banks and fintechs has evolved into a symbiotic partnership that leverages the strengths of both entities to better serve consumers and the economy. Banks excel at creating the right conditions to protect consumers and the economy through robust governance, regulatory compliance, and scale. However, they have historically struggled with user experience and niche services. Fintechs, on the other hand, bring agility, specialisation, and superior user experiences for specific tasks. By collaborating, banks can integrate innovative fintech solutions while maintaining their core strengths in governance and scale.
Partnerships allow banks to quickly go to market with new offerings and stay relevant in a rapidly changing financial landscape. Fintechs benefit from banks' established infrastructure and regulatory expertise.
As open banking regulations expand, the bank-fintech collaboration is likely to become even stronger and emerge as a competitive advantage. However, challenges exist in these partnerships. Banks face significant regulatory scrutiny and are cautious about creating systemic risk, leading to a tension between innovation and risk management. Cultural differences, including banks' preference for in-house development and fintechs' agile approach, can create friction. The operational overhead of meeting bank requirements can be burdensome for fintechs, and the different approaches to risk and commercialization can make collaboration difficult. Despite these challenges, the partnership model is increasingly seen as essential for both parties to fully serve evolving consumer needs and stay competitive in the digital age.
