Increased competition from fintechs, demand for better cross-border payments solutions and a change in consumer behaviour and attitude may force banks to adopt a new strategy. We interviewed Anders la Cour, Co-Founder of Saxo Payments Banking Circle, on what these changes may bring and the advantages that the banking industry may enjoy by outsourcing non-core functions to third parties.
The banking industry is one of the last vertically-integrated industries left. What developments have accelerated the process of banks outsourcing non-core functions to a third-party utility?
Our latest white paper, published by Burnmark, identifies that, as an essential service used in everyday life by both consumers and businesses, the banking industry meets the basic criteria of a utility, but has traditionally not held the same structure as other utilities.
But this is changing. New regulation and increasing competition for the customer – not just amongst the banks but from a new generation of challengers - have had a huge impact. And I believe this means that, for the first time in generations, the banking industry is on the cusp of big change.
New regulations are encouraging more Financial Techs to use banking assets and customer data to provide businesses and consumers with more innovative services. And fintechs are seizing the opportunity to shake up the traditional financial services model. 52% of UK millennials now prefer to do basic payment activities using fintechs rather than banks, simply because it is more convenient and the technology is easier to use.
With 75% of global banks retrenching from foreign geographies, the correspondent banking model no longer serves the industry effectively. Banks are being forced to look at new ways to provide international services. And that’s a good thing because they are now experiencing the benefits of outsourcing non-core functions to third-parties; namely, they can focus on owning, managing and growing their customer relationships, while specialist firms manage many of their back-office services.
Despite the explosion of global trade and commerce enabled by technology, borders still matter when it comes to making and receiving payments. What are the major pain points for merchants and SMEs when making international payments?
We recently commissioned a widespread study into the major issues for merchants that trade internationally. The results revealed that the hurdles and high costs associated with international trade have stopped 39% of merchants from expanding into new territories.
The issue of speed came up repeatedly, showing that speed of settlement, speed with which banks are able to provide financing, and speed of response from a bank or payment provider are all major pain points. A delay in any of these can cause a merchant to falter.
When it comes to cross-border transactions, merchants have a long list of concerns, ranging from transaction fees and foreign exchange rates to the speed of processing and the risk of fraud. Half of the merchants who responded to our survey said that transaction fees are their biggest concern when making and accepting cross-border payments. 40% are concerned about getting the best FX rate, and speed of processing payments is a concern for 29%.
What are the main challenges for banks and Financial Tech firms when developing solutions that try to meet the global payment needs of merchants and SMEs?
Cost and time are the biggest challenges. Charges at every stage of the payment as it goes through many banks en-route to its final destination and poor FX rates add to the costs that then have to be passed onto the customer. On top of these, transfers which take days to arrive in the recipient’s account, as well as, lengthy onboarding processes due to regulatory requirements, such as KYC, add to the time needed to complete a transaction. This can undermine competitiveness.
Tackling these issues, however, is difficult for start-ups and smaller banks, with fewer customers and less capital. But having the ability to outsource non-core activities to a third party – a financial utility - can enable financial institutions to address these challenges.
How is Saxo Payments Banking Circle positioning itself to address these challenges?
We are leading the emergence of a super-correspondent banking network powered by third-party utilities which offer the infrastructure, liquidity pools and connectivity with payment rails across the globe to facilitate cheaper, faster and secure cross-border payments. The ability to outsource non-core activities to a third party enables financial institutions to address innovation and global expansion challenges, whilst focusing on the customer relationship.
Saxo Payments Banking Circle has evolved to become a global scale financial utility, underpinning the service propositions of a wide spectrum of businesses within the financial tech industry, as well as traditional banks, giving them a genuine added value for their customers.
To download a copy of the white paper, ‘Reimagining global banking services in the connected digital marketplace’, please click here.
About Anders la Cour
Anders la Cour is the co-founder of the ground breaking financial utility, Saxo Payments Banking Circle. Previously a technology and financial M&A lawyer at a tier one law firm in Copenhagen, he is a hands-on leader for the business. Over the last 16-months the Banking Circle has grown at a tremendous pace.
Saxo Payments Banking Circle
Saxo Payments Banking Circle is a global scale financial utility, underpinning the service propositions of a wide spectrum of businesses within the financial tech industry and traditional banks allowing them to focus resources on the customer relationship. For businesses within the financial tech industry, the Banking Circle offers an alternative for managing multiple banking relationships in different regions. For banks, the Banking Circle offers an add-on to the correspondent banking model.
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