Cash is king, but for how long? As a new era of payments is here. Big changes are afoot in the financial ecosystem. Read about them here.
The Hare Is Back In The Financial Race
Banks are the hare of the financial race but must keep pace with the ongoing digital revolution, as fintechs are capturing their market.
Once upon a time, a hare and the tortoise decided to race. The tortoise, against all odds, won the race. This happened because the hare decided to nap under a tree even before finishing the race. Had someone woken up the hare, the hare would have definitely crossed the finish line before the tortoise.
Banks are the "hare" of the financial race. Banks were the first constituents of the financial industry and have been around since the time the concept of currency originated. The currency itself graduated from a wooden plank to coins and then subsequently in the form of paper bills. Now currency is taking on a digital form. However, the tools for tracking and managing financial flows are incredibly antiquated. Last year, CitiBank transferred $900M to a hedge fund due to “human error”.
This is just one of the many cases of a payment blunder committed by a bank due to human error. In spite of facing difficulties with their current systems, banks are hesitant to upgrade their ways of conducting business.
The hare has stood unchallenged for quite some time now. However, the invention of mobile devices, availability of the internet and advances in Artificial Intelligence have opened new avenues of business. Financial technology start-ups are able to anticipate the potential and are tapping into the profits of the payments industry.
Digital Transformation in the Payments Industry
A digital revolution is forcing financial institutions to evolve their payment solutions. The payments industry is one of the most complex industries in the financial world. Multiple players in this industry work in tandem to make payment transactions work. Digitization has not only made the payments process more transparent but also improved transaction speed and overall user experience.
The rise of the Tortoise
FinTechs are not only selling a seamless payment experience to end-users but also providing important services to financial institutions to enable smooth integration with multiple parties along the payment chain.
Mobile wallets are replacing cash. People can now choose from multiple payments methods at their convenience. Hence, banks are required to update their back-end infrastructure to allow integration with multiple payment service providers. For FinTechs, with their agile model built over the cloud-based technology, it is easy to provide a wide range of services with little capital cost. This allows them to compete with established players in the finance industry.
The Wake-up call for the Hare
Simply offering a bank or brokerage account is no longer good enough to stand out. New platform integration solutions make it extraordinarily simple to integrate the core features of banking into a unique app-based experience. Technology backed financial services are the new selling point in the payments industry.
Cross-border payments are more complex than domestic payments owing to different regulatory compliances in every country and the end-user experiences reflect the disproportion. Here are a few ways in which FinTechs are helping banks improve the international payments experience for their users.
|1||Simple Back-end Integration|
Cross border payments require working with multiple partners across several corridors. Establishing collaborations with different entities takes time and energy. The extent of collaboration is limited by the technical capability of the participating entities to share the necessary interfaces for integration. Multiparty backend integration is made easy by the platforms such as the Fable Payments platform. Collaborating entities get access to all payment partners with a single integration. They also provide the flexibility to work with multiple partners across different corridors.
|2||Compelling User Experience|
FinTechs have gained new consumers by offering an engaging experience. Rather than investing time and resources in developing their own front-end solutions, a large number of banks have begun purchasing product licences from established FinTech players and incorporating them into their offerings.
For instance, RemitMoney portal used by Axis Bank to make cross border payments from the US is a white label solution running on the Fable platform.
Firms offering financial solutions with the help of new-age technology are agile. They can innovate and transform quickly as against their traditional peers. Therefore, they could offer a multichannel customer interface. Their processes are built in a configurable manner to address the fast-changing business dynamics, thus enabling them to transform rapidly to the changing market demands.
|4||Automated Compliance Tests|
Cross border transactions are complex owing to the significant differences in regulatory compliances of different nations. Traditional banks rely on training and voluminous documents (country manuals) to ensure compliance in cross-border banking. Advances among regulatory technology firms are making it easy for banks to dive into the international payments ecosystem.
The platform approach in the cross border payments chain helps eliminate the middlemen thereby allowing banks to make more revenue per transaction. The services are offered for a fixed fee instead of a percentage of the transaction. This makes high volume transactions much more profitable.
Technological advances in the form of mobile devices, Artificial Intelligence, social media and blockchain have ushered in an era of open banking in the new millennium. Large monolithic firms, because of their large IT footprint, are collaborating with FinTechs for a faster go-to-market.
The tortoise and the hare are collaborating to reach the finish line together. The hare’s speed and the tortoise’s unwavering focus makes them a great team. The banks with their established customer base and FinTechs with their reconfigurable, go-to-market offerings collaborate to revolutionize the cross-border payments ecosystem. To know more about digital solutions suitable for your business, get in touch with cross-border payment solutions experts here.