The emergence of the payments utility

As fintech startups continue to emerge on an almost daily basis, it seems that the supposedly ‘simple’ process of opening a bank account is becoming increasingly difficult for startups and even established payments businesses – especially outside of first world markets.

Companies looking to trade abroad generally need to open accounts in the geographical region in which they wish to do business. But the appetite of the traditional providers to offer this service is waning. Regulation, competition, even terrorism are all resulting in the incumbents finding the basic bank account a less attractive aspect of their business. As a result, startups including the burgeoning world of fintechs, and established payments businesses are left searching for a provider that is willing and able to help them reach their international trading potential, by allowing them to open the necessary bank accounts.

By nature, fintechs are smaller, nimble and quick to adapt to changing market conditions. But the number of intermediaries required for a traditional international bank transfer adds significantly to the cost and time involved with the process.

Barriers to trade

At Saxo Payments we recently carried out an exclusive study into the payment processes of issuers, acquirers, payment service providers (PSPs), FX businesses and merchants . Less than 40% (38.2%) believe they get a competitive foreign exchange rate when handling cross border transfers. And almost half (48%) do not feel satisfied with the rates they pay to handle cross border transfers for customers. Yet nearly a third (32%) said they do not have time to look elsewhere and 28% are put off because the change is so unlikely to be implemented due to the resources required to make the switch.

So what is a fintech to do? They need a bank account in order to send and receive payments and they need to be able to trade in different currencies. And that’s where an emerging trend is starting to develop.

The emergence of the ‘utility’

Open banking is an emerging term in financial services, driven by regulations that promote consumer choice and competition. With the advent of XS2A under PSD2 and Open Banking Standard, there are plenty of new opportunities for fintechs, empowered by the freedoms of new legislation. However, doing everything ‘in-house’ won’t necessarily be the key to success. Both the tier two and three banks and established payment providers are aware that it makes no sense to build the utilities that underpin their service. And this, I believe, will result in the emergence of the stand-alone ‘utility’.

Using a ‘utility’ will be the route to success for those operating in banking and fintech in the next few years. Tier two and three banks could become more digitalised, relationship-driven and focused on the customer relationship by outsourcing non-core functions to third parties.

And looking further ahead, the banking industry is likely to be even more fragmented, but capable of delivering ‘banking services’ in a much more dynamic way than we see today.

About Anders la Cour

Anders la Cour, Chief Executive Officer of Saxo Payments graduated from the University Master of Laws in Denmark and was admitted to the Bar in 2008. He worked as a technology and financial M&A lawyer at Bech Bruun, a tier one law firm in Copenhagen. Using his experience in legal M&A as well as in venture capital, coupled with a strong commercial acumen and entrepreneurial mind-set, he co-founded Saxo Payments in 2013, with backing from Saxo Bank.

About SAXO PAYMENTS

In 2013 Saxo Bank formed Saxo Payments A/S, capitalising on Saxo Bank’s core capabilities within the non-cash payments market. Registered as a payment institution in the European Union, Saxo Payments specialises in providing global payment account transactions and foreign exchange services to payment providers, including acquirers, payment service providers, FX brokers, money transfer businesses, e-wallets, and alternative payment providers.