Fintechs and banks must work together to reverse disintermediation

Fintechs and banks must work together to reverse the disintermediation trend, says a new report from BNY Mellon, in collaboration with the Aite-Novarica Group.

The study, titled The forces disrupting payments disclosed financial institutions (FIs) serving corporate clients are being disintermediated by fintech payment providers. The data also showed that banks are bucking the trend by partnering with larger banks that have already built connections to fintechs.

The findings in the report are based on feedback from a survey of 790 employees in medium and large organizations in seven North American and European countries.

As a result of the findings, community banks and credit unions continue to be at risk of disintermediation – when businesses bypass their banks by engaging directly with fintechs – with only a third of businesses surveyed believing their FIs fully understand their payment needs . In fact, 62% of business respondents said they already work with a fintech provider.

The report also showed that 87% of companies have made significant investments in improving their organization’s payment technology and processes. Regardless, those still planning to make an investment are still very high (88%), presenting a wealth of market opportunities for fintechs and FIs coming to market with comprehensive payment services that can meet customer needs.

The banks are still the most popular partnership option

However, firms also said they would prefer to partner with another bank rather than seek third-party fintech providers. Smaller banks in particular find it beneficial to partner with larger FIs who have already vetted and validated the many fintech payment options available.

Speaking about the findings, Isabel Schmidt, Co-Head of Global Payments at BNY Mellon explained, “Banks need to address friction points as their corporate customers show greater expectations for robust real-time capabilities,” says. “Our experience is that clients who partner with financial institutions that are connected to fintechs and their capabilities have a greater chance of success.”

“The threat of disintermediation is driving much innovation among banks as they partner with fintechs on new ways to drive growth,” said Erika Baumann, author of the report at Aite-Novarica Group.

She added, “This leads to a market opportunity for fintechs as well as FIs who have responded to market demand by developing robust services to fill the biggest gaps in their payment strategies.”