Cooperation between fintech and banks as a step towards reversing disintermediation

BNY Mellon, in partnership with the Aite-Novarica Group, today released a report that found that financial institutions (FIs) serving business customers are being disintermediated by fintech payment providers.

But it also found that banks are bucking the trend by partnering with larger banks that have already built connections to fintech.

The report – The Forces Disrupting Payments – showed that banks, community banks and credit unions remain at risk of disintermediation – when businesses bypass their banks by engaging directly with fintechs – with only a third of businesses surveyed believing their FIs understand their payment needs.

In fact, 62% of business respondents said they already work with a fintech provider.

Overall, however, businesses said they would rather work with another bank than have to seek out third-party fintech providers.

Smaller banks in particular find it beneficial to partner with larger FIs who have already researched and validated the many fintech payment options available.

“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 threat of disintermediation is driving a lot of innovation among banks as they partner 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 shows that 87% of businesses have made significant or somewhat significant investments in improving their own organisation’s payment technology or processes.

Despite this, those still planning to make an investment are still very high (88%), presenting an abundance of market opportunities for fintechs and FIs who together come to market with efficient, comprehensive payment services that can cater to a spectrum of customers need.

The findings in the report – produced in collaboration with Aite – are based on feedback from a survey of 790 employees in medium-sized and large organizations in seven North American and European countries.