Thought Leadership

Payments Innovation? #FintechYVR Dissects Its Relationship with Banks

TL;DRNine out of ten fintech companies agree: traditional financial institutions are a valuable partner in the payments industry.

“2015. There probably hasn’t been a better time to be a payments company.”

So began the British Columbia Technology Industry Association’s panel on disrupting payments. The event—Unplugged: Building Vancouver’s Fintech Cluster—brought together leaders from Vancouver’s top fintech companies to discuss how their businesses are shaking up the financial industry. After the insightful panels on investments, wealth management, and traditional financial services, PayPal’s Alexander Peh took the stage to talk payments with some big names in the Vancouver payments scene:

“Fintech is hot,” Alex said, “and payments are super hot.”

The panelists took turns to introduce how their companies were changing the payments industry. Phillip detailed how RentMoola is simplifying rent payments by introducing new transaction methods. Nat explained how Payso is using new technology to improve peer-to-peer payments. Michael described how Payfirma is removing the middlemen and making it easier for consumers and merchants to transact. “Innovation isn’t just about creating something new,” Michael noted. “It’s about creating something of value.”

Bumping Up Against The Banks

Of course, innovation is central to the financial technology industry. It’s the reason that many of these companies exist—they saw a gap or a failing in the financial industry and sought to improve it. But, as Alex pointed out, innovation often brings friction. As payments companies strive to improve the industry, they invariably bump up against traditional financial institutions.

“It’s not always about competition,” Alex observed. “It sometimes can be about collaboration. Sometimes you need to fight the incumbent, but other times, startups—particularly in fintech—want to fight the incumbent because it’s the thing to do. You’re not sexy in fintech unless you’re taking it to them.”

'It's not always about competition. It can also be about collaboration.' - @alexanderpeh #fintechYVR Click To Tweet

So, when fintech meets financial institutions, what sort of relationship develops? Is it one of competition or collaboration?

Financial Institutions: Competitors or Collaborators?

“One of the things about banks is that everyone finds it easy to beat up on the big guy or the bully,” Michael said. “But they’re not bullies. They’re innovative; they have great ideas and they want to move them forward. They just have tremendous infrastructure costs that prevent them from moving at a faster pace… They have great ideas, they have great imaginations, and they want to do cool things. They’re just doing it at the pace that they’re capable of. The idea is that they can partner with companies like us, which allows them to have a skunkworks project on the side and move it at a faster pace, which is the same pace that we want to move it at.”

'Banks are innovative. They’re just doing it at their pace.' - @MichaelGokturk Click To Tweet

Banks can augment their offering by partnering with smaller, more agile fintech companies—but this relationship isn’t a one-way street. Michael points out that partnerships with banks yield benefits for all sides. “It’s a great channel to work with. They have the experience. They have the access to the customer base. It’s been a great partnership for Payfirma, for the bank—but more importantly, the customer wins.”

Nat offered a similar perspective, suggesting that payments companies can help banks succeed in areas where they often struggle: “I think the question is, ‘what do people trust banks to do, and what do people not trust banks to do?’ Banks have great infrastructure—they’re really good at capital adequacy. I trust that if I put my money in a bank account, the money will be there when I want it. There are a lot of things that banks do really well. Where I don’t trust banks so much is on the user experience. It took me weeks to get a credit card for my bank account. I had to go in six times to sign forms. It was a terrible user experience. So that’s really where we see our value proposition.”

Nat argued that, even as fintech companies bring new opportunities to the industry, banks remain an important part of the payments ecosystem. “We have a bank in the back end. We’re not trying to replace the banking rails, but we think that we can provide a better user experience. I think that’s very similar to a lot of fintech companies.”

Hyperwallet <3 Financial Institutions

This question—competition or collaboration—has only ever had one answer for Hyperwallet. As a company, we’ve never shied away from building partnerships with financial institutions because we recognize the mutual value to be gained from these relationships. Banks have the established infrastructure, but they’re not always well integrated and streamlined. Hyperwallet, on the other hand, prides itself on innovation, flexibility, and simplicity, and we rely on established financial institutions to maintain our global financial network. Over the years, we’ve come to understand the value we deliver as a layer on top of traditional financial establishments, harnessing their infrastructure to provide fast and affordable payouts to millions of independent workers around the world. Going forward, we’ll continue to work with banks in ways that benefit every party—especially the end users.

So while it might not be sexy, Alex, it’s definitely sensible.

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