Podcast: What’s next for fintech in banking?

S7E1 Transcript

ERIN: Never before in our history has technology advanced as quickly as it's advancing today.

ANDREW: When we look at the rate of change here, it's a bit like computing power. We, we haven't seen it go this fast ever. And it goes faster and faster and faster, and we've got to keep up, right. We've all got to keep up. And I think the amount of change that we're seeing in the industry is unprecedented.

ERIN: And with technology so tightly interwoven into the financial ecosystem, the way that financial services and their customers operate are changing too.

ANDREW: Hey, if you don't participate, you may not be around in the future. That's a motivator for most people.

ERIN: Nothing like a little fear of losing your business to light a fire under you.
This is Financial Futures, the podcast that charts the frontiers of FinTech innovation. In this series, we're exploring some of the biggest advances in banking platform ecosystems to guide you through the developments that are changing the way consumers and businesses alike think about their finances. I'm your host, Erin Dangler. And in this season seven premiere, we'll be exploring the very backbone of the financial services industry as we take a look at FinTech ecosystem innovation.
Today I'll be joined by Andrew Beatty, division executive and head of enterprise banking at FIS. We'll be discussing some of the major advances in FinTech that are modernizing every aspect of the financial services industry, from the furthest reaches of the back office to the end consumer. And we'll be taking a look at some of the key drivers that are advancing this exponential progress. So to set the scene, tell us, Andrew, what are some of the big changes within the FinTech ecosystem we could expect to see in the near future?

ANDREW: There's a lot of key trends that we're seeing. Notably the introduction of the super app. We're seeing lots of news and activity in the industry right now around that, you know, you see PayPal, you see Block, formerly Square, you see the evolution of Walmart and what they're trying to do. And who knows what Amazon is doing behind the scenes. So I think we're starting to see kind of the evolution of a super app, which is very similar to what we saw in Asia with WeChat, Grab, AliPay, and just the success they've had there of creating that ecosystem to kind of embed financial services in just to a way of life and an operating model for individuals. I think we're going to see more offerings around the buy now pay later and the evolution of lending. And I think we're going to see a drive that's going to result in a bit of overcrowding in that space, and that's going to bring some oversight, some scrutiny, some regulatory controls, but I think the concepts of buy now pay later is a great way of demonstrating some of the embedded finance trends that we see the kind of move forward, financial inclusion and offerings for folks that may not have access to banking services and buy now pay later is an example of that. And then no podcasts would be complete without talking about crypto and blockchain and all those kinds of things that are starting to be very relevant. And I think the last one, this is an interesting one, is the metaverse and just the focus on what the metaverse can bring by way of a new financial services ecosystem and what banks and financial services companies are going to have to do to work within that ecosystem. I think that's an exciting area that we can talk about.

ERIN: That sounds great. Yes, and we are going to hit on a lot of those topics more in depth as this season goes on. What I hear you saying, though, is that all of these ecosystems, these fintechs, they're non-traditional, non-traditional banking services that are gaining momentum. So what led to this rise of non-traditional banking services? Because they're just continuing and continuing.

ANDREW: Yeah, I think the word “innovation” comes to mind, right. How do you do things better and different and get a better outcome for consumers? You know, the concept of a challenger of bank was to challenge the status quo and that dates back to the last financial crash where we saw governments, particularly regulators in the UK, create a path for competition. And I think innovation has just continued from there and we're seeing those organizations now, where we talk about the Monzos and the Starlings, and now in the US, Chime, et cetera, they've grown up. They're not brand-new neo-banks anymore, they're well-established in the financial ecosystem. And I think that's where we're seeing some of the challenge continue, right. And the, the evolution of those platforms and the evolution of that whole concept of challenging the status quo.

ERIN: And how has it benefited customers? I mean, again, creating some more competition, always, but let's get a little more even practical.

ANDREW: I think sometimes we forget about that. You know, we talk about these things and we forget the consumer and that's what I think is different here, the consumer is benefited by choice, by better product. They're getting things that I think they were not getting from the traditional banks. Now, in fairness, the traditional banks and what we call the incumbents have stepped up and done certain things. But they've got a long way to go when we recognize that. But certainly some of these challenges or concepts is really about delivering better product and better outcomes for consumers. And they've done that through the application of technology, so you kind of hear about banking now being more of a technology-first approach. And I think consumers, particularly, you know, we talked about the pandemic, digital was the only way they could interact. If you didn't have those things and you didn't have a means to do that, you were going to struggle as a financial institution. I think that's where we've seen the most benefit. And now it's just tenfold as these things kind of expand out even more.

ERIN: Yeah. I saw a quote that said go digital or go dark if you're a financial institution.

ANDREW: Yeah. It's a bleak statement, but the reality is it's true. Right? And that's why I think when you look at the past 12 to 24 months and just the nature of consolidation in the industry, mergers, et cetera, that's as a result of the strong eating the weak, in some cases, or putting two entities together, to be more powerful and to drive. Technology changes and things that they couldn't do at scale individually. So, your comment is bang on.

ERIN: Well, and you're talking about all this technology and interfacing. I mean, basically we're talking about open banking, right? Is that what digital has led to?

ANDREW: I think open banking started several years ago. It's not a new concept anymore. I think we've struggled to reap the benefits of open banking until recently. And I think the past 24 months have demonstrated that. And I think open banking and the concept of access for everyone to the data that's stored in their banking providers is key, right? And how fintechs and banks interoperate together. Open banking is a regulatory kind of thing in Europe, whereas in north America, it's really not. But I think we're going to see some of that where it's, hey, we need to be open, we need to be able to share data. And when you look at things like buy now, pay later, financial inclusion, et cetera, how do you bring all that together for a consumer to see so they understand the complete picture? And that's where I think open banking is going to play another role.

ERIN: So, how does it get better? Because it's already popular in Europe. It's starting to gain traction here, although we may not have the regulations, what's the evolution?

ANDREW: I think the evolution is further collaboration, right? And I think when we talk about the bond between FinTech providers in a new entrants and traditional banks is how they interoperate together, how they partner, how they generate mutual benefit for each other and their consumer, right? And I think they can play together - we've demonstrated that. And I think that's where it needs to kind of move further along.

ERIN: So what are some practical benefits for both parties in open banking?

ANDREW: One of the challenges has always been access to data has been difficult—I think that's one of the challenges that the incumbent banks have struggled with, which is how do they actually participate in open banking and provide what's necessary? I think some of the technology changes what banks are employing: replacing their core banking platforms, introducing API-first strategies, is kind of allowing these banks to kind of interoperate together. It's allowing fintechs to innovate on the back of that. And I think as we move forward, there needs to be just a continuation of that technology move, but also the partnership between these organizations to make it better—how do we bring everyone together for the good of everyone?

ERIN: And how is that happening?

ANDREW: I would say, going back to your dark comment, you know, hey, if you don't participate, you may not be around in the future. I think that's a motivator for most people.

ERIN: Nothing like a little fear of losing your business to light a fire under you. So, with these collaborations between fintechs and banks and even consumers, how important is it for financial services to be up to date, to be on the latest stack in order to do this collaboration?

ANDREW: I think it's very important and I think that's been proven out. You can certainly do some things as a Band-Aid. But if you just look at the traction in the market and a topic that's near and dear to me, which is core banking transformation or core modernization, that was a conversation that happened several years ago, which was very theoretical. Everyone wanted to do it, but it was risky. And I think a lot of institutions now that recognize that they need to be around for the next 50 years and continue their legacy without the legacy technology, no pun intended, is they need to eat the frog, right? Let's wake up in the morning, you got to do this. Let's do it now. I think there's a new generation of technology, thinkers, executive leaders in all banks that are recognizing the importance of making these changes. And making them now and rather than waiting for something to fall apart, they're being proactive. So, we've seen great traction. There's lots of announcements, the new sets of technologies, cloud-based API first, all the things that enable the things that we just talked about are critical. And executives are making decisions, that's the right thing to do, even though it's risky. And there's challenges to it, but I would say now's the time.

ERIN: Core transformation isn't just about making financial institutions look attractive to customers in the present. It's a necessary process if institutions want to be around in the future. However, making this kind of change isn't as simple as scheduling an overnight update on your phone because, as the title suggests, it is a transformation, and this can be a daunting prospect. So, what are some real-world examples of institutions that have gone through this process and did eating their frogs payoff?

ANDREW: There's certainly institution that we've worked with in the past 24 months that have embarked on a core banking transformation and been successful in moving the needle to get new technology into their organization. And each of them kind of adopt a different way of doing it. We kind of talk about strategies, like stand up a new bank and a new organization next to a bank as a path forward, as well as, you know, complete transformation of migrating existing technology and sunsetting it effectively. And we've got several institutions out there that are doing that with us, but also there's others in the industry that are doing it with other partners. I think there is success out there in kind of de-risking the strategy and getting these things done faster and not taking too long to do it.

ERIN: What was it like for these companies, with their eating the frog, what was their pain point? And then coming out on the other end, what are they saying now?

ANDREW: The pain point is that when you make technology changes in one area, you have to consider the technology changes and the business process changes that you need to make in others to reap the benefits of what that technology brings. These are widespread transformations and programs that span right from the core all the way through to the consumer interaction point, and how the organization is taking advantage of new technologies to automate as much as possible. But at the same time, leaning heavily on that customer experience and some of the things we talked about earlier on about the benefits to a consumer, that's one of the biggest challenges. How would you change all these things and adapt to the new technologies that you're bringing in rather than try and be a servant to the technologies that are already in place. Which, at the end of the day, won't give you the benefits that you need. So that's a real struggle and a real culture change within an organization.

ERIN: Let's move on, talking a little bit about value added services. What do they bring to the table?

ANDREW: I think you're kind of alluding to kind of fintech collaboration and how banks can bring in and introduce neat things and things that can help a consumer. And I think we're seeing some of that in the evolution of these ecosystems that are partnerships between banks financial services. We're now seeing other verticals come into this space, right. We're seeing retailers, we're seeing insurance companies. I think it's kind of, going back to that super app concept, how would you kind of bundle into an ecosystem for someone, or a platform that brings together things that when you add one and one, you get three, right. You're getting more benefit out of them. So how would you pair real estate services with a mortgage application? How do you bundle in moving services, insurance and other things, right? The other piece is how do you embed some of these financial services capabilities that consumers may not typically have had access to? When we talk about embedded finance money, movement, loyalty programs, et cetera, how do they just get embedded into the experience and they're just second nature? Someone doesn't need to think about them. They're there for them, they can take advantage of it. And they can show up in one place, bringing the best things together. And I think we just need to continue that journey and really put some more substance behind it so that we can bring these things together.

ERIN: So how does FIS work with financial institutions to bring these value added services to customers?

ANDREW: We've done various things. We obviously partner and we have done for decades with innovative solutions that can innovate on the back of our innovation, taking advantage of our technologies and how we can introduce them into our ecosystem at FIS through programs that we run such as the accelerator program out of Little Rock, as an example. We've now introduced a ventures operation within our organization, which is really focused on finding those early technologies riding the wave of some of these trends that we can invest in, we can give access to the power of FIS to allow them to kind of grow and expand, but outside of the FIS kind of operating model. So good strong partnership there. Partnerships is difficult, right? It's gotta be mutual. There's gotta be a benefit for both sides of the partnership. And that's where I think some of the FinTech partnerships in the industry have kind of struggled. It's not about just, I want new capability and I'm going to partner with you. What's the benefit to that smaller organization or larger organization as these things get brought together?

ERIN: Let's talk about that a little bit more like for someone out there who may be still working in a traditional bank setting, how do they go about selecting a FinTech partner to work with?

ANDREW: They have to look for mutual goals, right? What are they trying to achieve together? And what value are they going to bring as a combination? I think we also need to look at. How that partnership is going to evolve, right? It's not a one-time thing. We just set this up and we just hope it all works. So, what's the journey together? What's the roadmap together? What are we trying to build for the future and how do we communicate it? How'd you kind of pull these things together and work together collaboratively. And at the end of the day, it's, the benefits should be for the two that are coming together in the partnership, but also the end consumer, like you and I on the street.

ERIN: So how do fintechs strengthen banks' positions?

ANDREW: They definitely strengthen a bank's position by bringing innovative solutions and better outcomes for the consumer at the bank. And we also need to note that some of the things that fintechs bring are operational in nature as well, right? Things like automated reconciliations or AI machine learning and things that may not directly relate to a consumer, but are on the path to a consumers better outcome. But certainly operational efficiency is another outcome of a partnership between a fintech and a bank. Strengthening by bringing more, faster. How would you bring more capability? More of that leaning in around better product design, better product features and functions that kind of leads the path for a consumer through the financial life. But I would say the combination of these things building on the back of innovation that may already exist, just multiplies these things.

ERIN: Yeah, and it seems pretty clear that there are a lot of benefits to the bank, but what are the benefits for the fintech?

ANDREW: The fintech gets to grow. The fintech gets to share what they've invested in and built and, at the end of the day, there's always a “why” you're doing something, right? And the why is often let's not lose sight of the consumer, right. I think that's the benefit.

ERIN: What is the future of partnerships between tech companies, fintechs and financial services? What does that look like?

ANDREW: It's a crystal ball. I think we're going to see more partnerships. I think one of the challenges is for smaller financial institutions, in particular, that want to partner with fintech is just their ability to scale a partnership arrangement, to benefit from it and to manage it. And I would say these consolidated marketplaces, it's probably how some of the smaller financial institutions are going to benefit from those things. Whereas larger... we're seeing some trends in that space, whether it's certainly partnerships, but the certainly more immediate acquisitions that are taking place at those technologies so that's an interesting challenge for the industry.

ERIN: The partnership between fintechs and banks creates one of those rare win-win-win situations. The banks get access to the latest tech. The fintechs are able to grow and develop further products. And the customer gets access to better and better services. But some institutions are taking their partnerships with fintechs one step further, and in a move to ensure exclusivity, they aren't just working with fintechs—they're buying them up.

ANDREW: That's kind of a controversial thing, a provocative thing, right? Hey, it takes it out of the market. They've acquired it. It becomes theirs. Now, what's the challenge for those institutions that have partnered with that fintech that now have to rethink that partnership. Now the competition has it. Now the competition is stronger. So that's one of the conundrums, particularly with smaller fintechs or even the larger ones now as to what's the path forward for them. We talked about what's their ultimate goal? And the ultimate goal is to make money. Let's not kid ourselves, right. So how they do that could be an acquisition, and there's certainly some risk there.

ERIN: Can you give an example to that?

ANDREW: This week, when you look at Walmart acquired some fintech technologies, acquired a bank, really. They're a good example, you can see that in the news that, hey, there's some of the larger banks are investing, and not so large banks are requiring technologies as well. And at the end of the day, that becomes theirs, right? They're bringing in talent, they're bringing in a solution and it's really taken out of the market at that point. So how is that shared? I don't think that's probably an outcome, but the reality is there'll be others.

ERIN: And it's probably just part of that, the same evolution of it just requires more challenging the incumbent and creating more innovation, right? The more competition out there.

ANDREW: It's challenging that status quo always, right? When we look at where the industry is going, it's always keeping people on their toes. And you know, some interesting things around some of the fintechs kind of leading off what you just talked about is some of the fintechs that are financial institutions, right? If we look at the neo-challenger banks, they're making a move and not just providing their own service, they're now spinning out their technology. And so we're seeing some of these technologies not necessarily just be an acquisition by a financial institution, but also how the competitors in this neo-challenger bank space are actually now offering the differentiation outright. Hey, we have this great technology, we're now going to sell the technology, not just sell banking products.

ERIN: Right. So as we come to a close, Andrew, we've talked about all these incredible leaps in tech and it's astonishing. Could you just put into perspective how extraordinary all this changes?

ANDREW: When we look at the rate of change here, it's a bit like computing power. We, we haven't seen it go this fast…ever. And it goes faster and faster and faster, and we've got to keep up. We've all got to keep up. The amount of change that we're seeing in the industry is unprecedented. We talk about exciting times, but they really are. There's so much going on and there's so much opportunity to make the industry better. And I think everyone's woken up to the fact that it needs to. And you're seeing some really significant changes. You're seeing some of the big banks announced just massive technology expenses. Now there's some reality behind those that, hey, there's some business as usual, and that's a vast percentage of that to keep the lights on with legacy technologies and the challenges that they have operationally, but they are investing significant amounts of money in technology and how technology is going to help them, help the consumer, help them operate better.
But, the thing to point out and we're seeing this from our clients in particular is how do they bring value quickly and not wait until the end? So that's the journey and that's a well thought out journey with a partner whether it's just a technology partner or whether, you know, there's a system integrator that's involved or some of the big five consulting companies are involved in, in not only driving that change, but driving benefits. Not slowing down the bank or shutting down the bank when they make these changes, but doing it at the same time.
We use the analogy of changing the engines on an airplane while we're flying. I think this pace of change is amazing, but the adoption of change is equally amazing. Everyone is stepping up. Everyone is thinking how they do things differently. And the competitive landscape is getting broader and players that you didn't imagine were ever going to be in this space are very much in this space and enabling it. They're enabling with the technologies, but they're also providing services as well. And I think we're just touching the surface here. It's such an exciting place, right? It's like, there's so much happening. You know, we talked about those really kind of crazy places like the metaverse and what's going to happen in there. The world is not going to stop. We're just going to constantly be innovating, constantly, be looking at new ways to do things.

ERIN: Andrew Beatty is division executive and head of enterprise banking at FIS. That's it for today's show. Thanks for joining us.
We'll see you next time when we'll be taking a look at buy now, pay later, as we discuss how this modern way to pay is radically changing the way businesses and consumers make purchases and think about their cashflow.