Should Banks be Scared of Tech Giants Entering the Market?

Anders la Cour is a hands-on leader of the multi-award-winning provider of mission-critical financial services infrastructure, Banking Circle.

Responsible for the day-to-day management and the driving force behind its success, he orchestrated a $300 million management buy-out together with investment firm EQT and played a vital role in securing the firm’s banking license in February 2020 to make Banking Circle a bank in its own right.

Previously a technology and financial M&A lawyer at a tier-one law firm in Copenhagen, Anders la Cour identified a flaw in how the FinTech sector is serviced by the banks. He seized the opportunity to bring a solution to market, using his legal M&A experience, coupled with strong commercial acumen and entrepreneurial mindset, to secure the backing of Saxo Bank. This not only gave Banking Circle (then, Saxo Payments) the necessary funding but also access to immense FX liquidity to underpin the solution.

Launching Banking Circle, Anders brought to market a solution that has genuinely disrupted the previously accepted status quo of payments. The unique suite of solutions offered by Banking Circle, with its banking license, is helping businesses transact across borders in a way that was not previously possible.

Anders was appointed as inaugural Chair of the non-profit business association, Emerging Payments Association EU in February 2020, having been on the EPA Advisory board since 2016. He is regularly invited to speak and present at global industry events, including Money20/20 Las Vegas, Oracle OpenWorld, BankInno, Innovate Finance and Money20/20 Europe, has won multiple awards and had thought leadership articles published in a range of industry publications.

What are the current challenges facing banks and payments businesses in respect of digitalisation?

Although the banking industry has long been tech-heavy, its technology has not always served it well. Banking tech was once pioneering but has not been able to keep up with the pace of change in other industries, and the monolithic systems and in-house servers on which they are built have held them back from competing with the agility of new entrants.

Even before businesses, financial institutions, governments and individuals plunged into a COVID-induced crisis-mode, banks were changing their business practices, their culture and, most of all, their technology. They have been seeking and working hard to create more responsive and flexible businesses that centre around customers’ requirements and experience.

When we carried out a recent industry study into financial digitalisation and how COVID has impacted plans, we spoke to senior executives from a range of financial institutions across Europe, and feedback showed industry-wide optimism for the future. A substantially different picture from a decade ago.

We carried out the survey in the early days of the pandemic, and at that point – on the edge of a cliff of uncertainty – the most confident banks were those that have already made heavy investments in their tech stack or re-aligned their financial infrastructure to use third-party services to respond to changing demand. Less than a third of financial institutions said they were concerned about the pace of technological change in banking – dropping to 1 in 6 among commercial banks.

90% of institutions reported that they are building technology design and architecture into their business planning. 80% of retail banks and 74% of commercial banks have already worked with infrastructure providers. Despite the challenges, banks of all types are shifting towards digitalisation.

What role is the current global pandemic playing in this?

Our survey respondents and interviewees confirmed that the businesses they represented did already have in place plans to digitise more processes. However, many shared that these plans had to be fast-tracked due to the crisis. Clearly, COVID-19 has proved to be an accelerator for change, demonstrating the need for organisations to be adaptable, agile and prepared.

Many looked forward to 2020 as the hopeful dawn of a new decade, not least because of the number’s connotations of clear vision and perfect eyesight. Sadly, the reality has been very different: a rapidly changing landscape and an uncertain, unclear future. However, it is exciting and encouraging to see how recognition of the value and potential of digital has increased dramatically during the crisis.

That change, though, has taken place at different rates in different regions and among different countries, which brings its own challenges. Even within the EU, digital solutions are not unified. Different jurisdictions have different regulations, different taxes, different cultures, and the digital solutions emerging now are not compatible across the board.

Should financial institutions be scared of the fact that tech giants like Amazon, Google and Apple have entered the payments sector? What can they do to remain competitive?

Banks appear to have come to terms with some of the biggest challenges they face. Even though giants like Amazon, Google and Apple are angling for an ever-larger slice of the payments pie, only one in five financial organisations said they were now worried about competition from new entrants.

The financial ecosystem, in my opinion, is big enough for all types of providers. As long as they work together in partnership with others in the ecosystem, rather than trying to do it all in house. Focusing on fine-tuning and constantly updating the core offering and adding value via add-on solutions from other institutions is the way forward: collaboration, not competition. When institutions have tried to build, maintain and deliver all of the products their customers may want, it takes too long, they cannot invest the resources or the funds to pull it off successfully, and the result is a suite of outdated systems which cannot compete with the offering from the more agile providers.

Working together ensures business and consumer customers get the best range of solutions, and that these are updated and adapted when new tech is available and to meet changing market need.

How can Banking Circle help banks and payment businesses seize opportunities in the current climate?

As a financial utility, Banking Circle brings together a wide range of solutions for institutions to offer to their customers in their own name but without the significant investment required to build solutions in house. This avoids institutions attempting the shortcut of adapting existing solutions to meet another need or serve another market – this results in solutions that are not scalable and not fit for purpose.

We have seen a steady increase in banks and other financial institutions accepting the need to embrace third-party infrastructure providers such as Banking Circle, but the trend has been accelerating throughout the pandemic. Originally driven by the demands of customers and then by banks overcoming their traditional reluctance to cloud-based delivery of essential transaction services, we are seeing digitalization move quickly up the list of priorities. The need for rapid innovation and implementation of new solutions has certainly proven the value of working with an external financial infrastructure provider, as many would not have been able to meet the overnight change in customer requirements brought about by the pandemic and nationwide lockdown.

When we asked our survey respondents about challenges they face when building a digital-first relationship at scale, the need to create both a user experience and a user interface that work for a wide range of customer types came top of the list. The challenge is providing the experience rather than the underlying technology. Rather than being a maintenance headache for the IT department, banking infrastructure as a whole has become a much more strategic concern, with a significant number of businesses that now have an interdisciplinary team looking at the latest technology innovations. This crucial decision is not simply a matter of IT selection but something that can affect the entire business and consequently demands broad input and buy-in. It is an area where businesses need to ensure they have expert providers and dedicated developers and digital engineers working on inventing, building and maintaining the solution. This is not something institutions are likely to be able to resource in-house, which is why Banking Circle is able to add so much value to these institutions.

What excites you about the future of technology in the banking and financial services sector?

The move towards digitalisation, the realisation that digital financial infrastructure is a vital part of futureproof banking, and the increasing willingness to collaborate with third parties is extremely exciting and something I have been advocating for many years. Together, these changes are bringing something of a revolution to the financial industry. Banks, FinTech, Payment Service Providers and all other financial institutions are changing attitudes, cultures, technology and the way the business works. Together, we are working to deliver a better solution to the customer, whether that customer is a business or a consumer.

As the world makes its way out of the pandemic, and crisis-mode, banks must take time to understand the future, use the lessons of the past – including those learned during this pandemic – to determine longer-term thinking around the collaboration and infrastructure that enables success. Together, we must see 2020 as a time that lay the foundations for a bold new collaborative, accessible and future-proof financial ecosystem.

Digitalisation is a journey, not a destination or a task to tick off the to-do list: the market, regulation and tech continue to evolve. Even keeping up to speed, let alone getting ahead of the game, involves continual development and will affect every area of the business, so everyone must be on-board. It is, therefore, extremely important for banks, payments businesses and FinTechs to understand the role of financial infrastructure alongside new applications, services and solutions, working together to optimise the delivery of the right propositions to meet customer need. 

Banking Circle has published the results of its study in a series of three white papers, which are available to download here: www.bankingcircle.com/whitepapers

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