“Fintechs love to point fingers at banks. It’s easy to accuse them of offering poor service for businesses when compared to the shiny new innovators in the Fintech space.
“While it might have been fair to complain about big banks being outdated five years ago, that’s not necessarily the case anymore. It’s not that banks are outdated compared to other providers. They’re just focused on different services. “
This is the view of James Simcox, Group Chief Product Officer & International Managing Director of Equals Money, who speaks to FinTech Magazine in the below Q&A about why the key for businesses is to find the right fintech that integrates with banks, builds on payment rails and provides a personalised service to fit their needs.
Commercial vs. retail banking; are banks lagging behind?
It’s worth highlighting that banks aren’t lagging behind in terms of infrastructure. For example, Citibank has a great suite of APIs that offer businesses access to brilliant services and partnerships that establish new revenue streams.
Many banks also offer great out-of-the-box business solutions. They provide low-cost transactions in local payment networks and an account that users will be familiar with from their own current accounts.
But it’s important to remember the two main drivers of profit for banks and that these profits can often take priority over how they service businesses.
Banking can be split between commercial and retail. Commercial banking makes money on tight margins due to high flow volumes. With tighter margins, banks will focus on businesses so that they can receive high flows and provide simple solutions.
This is why businesses with lower flows or specific needs, such as foreign currency exposure at good rates, will often be underserved by the big banks – they just don’t have a large enough transaction volume.
Businesses operating internationally know what rates should be, so they notice when banks charge them rates that don’t match what they’re seeing in their own operations.
It’s for this reason we’ve seen a demand for alternative providers to banks in the foreign exchange space, such as Fintechs who can aggregate the flow from lots of smaller clients whilst providing the services larger companies get from those big banks.
On the other hand, retail banking makes money from higher margins backed by the potential to sell a lot of products (mortgage, currency account, credit cards) to each customer.
And while cards have become the go-to payment method for most businesses, having 10 credit cards from a bank’s retail offering simply wouldn’t work because of monthly fees, the need to credit check individual card holders, and other hoops to jump through with credit cards.
A provider with prepaid expense cards and shared virtual cards, such as a Fintech, works much better for a business’ needs, especially when it comes to security and expense management.
It’s these specific needs that lead savvy businesses to seek out alternative payment providers, such as fintechs. Getting a number of services under one roof is an appealing offer for businesses, especially when they can’t receive many of those specific services from big banks.
Banks aren’t running behind. But because of how they make their profit, they’re not actively helping small businesses to catch up.
Can you expand on the role of banks and the gaps that fintech fills?
Fintechs like Equals Money can act as the “middle man” for businesses, as they’re big enough to build relationships with and be sold to by banks, with the capacity to work with a range of businesses and fully understand their needs.
Businesses benefit from one connection point to a fintech, with personalised service and accessible technology, that links them to a complex network of banking relationships and services.
Integration is a perfect example of how fintechs can work with banks to provide solutions for businesses. Integration with banks can be complex and require a lot of legwork from the business side.
File formats aren’t consistent across the banking world, and businesses that are already working on tight time and cost margins don’t want to have to adapt their rules and ways of working to generate the right output.
Fintech businesses do this complex integration with banks so that businesses don’t have to.
Banks aren’t lagging behind fintechs in the payments space. However, searching for a solution from a bank limits the kind of service an SME will receive. Fintechs are best suited to integrate with banks and then offer a solution to those businesses.
At Equals Money, we combine a range of services with our connections to Tier 1 banks. This means we have the capacity to work with a client, see how they onboard and sell to customers, and see how our services can match those specific needs.
We can focus on the subsets and build a payment solution that works for them. By leveraging existing relationships with banks, Equals Money takes the complexity out of payments for businesses of all sizes and sectors.