Banks are being cut out of business deals by fintech challengers

A new report has revealed that two-thirds of business customers do not trust their current bank’s payment processes and 62 percent already work with a fintech provider in an ongoing atmosphere of competition between traditional financial institutions and fintech.

The report, The Forces Disrupting Payments, found that financial institutions working with corporate customers are being cut out of the financial process by new fintech payment providers. Conducted by BNY Mellon in partnership with the Aite-Novarica Group, the research shows that banks are bucking this trend by partnering with larger financial institutions that have already built new relationships with fintechs.

The report illustrated that banks, community banks and credit unions are still at risk of being cut when businesses deal directly with fintech, the authors explain. Only a third of businesses surveyed believe their existing bank fully understands their payment needs, and 62 percent of business respondents said they already work with a fintech provider.

This so-called “disintermediation” reinforces the sense of competition between traditional financial institutions and fintechs, but it also enables opportunities for innovation and collaboration, where both sides have a lot to gain.

Companies reported that they would rather partner with another bank than have to seek out third-party fintech providers, the report authors say. Smaller banks have found it beneficial to partner with larger financial institutions that have already vetted and validated fintech payment options.

“Banks need to address friction points as their business customers show greater expectations for robust real-time capabilities,” said Isabel Schmidt, Co-Head of Global Payments at BNY Mellon. “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 banks must cooperate more, say BNY Mellon and Aite-Novarica Group

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.

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

The report also reveals that 87 per cent of businesses have made significant or somewhat significant investments in improving their own organisation’s payment technology or processes.

It found that 88 percent still plan to make an investment, providing an abundance of market opportunities for fintechs and financial institutions working together, the authors say.