Author: James Simcox
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 While it might have been fair to complain about big banks being outdated five years ago, that’s not necessarily the case anymore.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 lagging behind other providers. They’re just focussed on different services.
Here, we’ll explore how high street banks and fintech payments providers differ and why understanding these differences can help businesses find the right service for them.
The role of banks and the gaps that Fintech fills
To dispel the myth of banks lagging behind in the payments space, you have to examine the infrastructure. Some banks are keeping pace on infrastructure development just as much as fintech businesses. Citibank has a great suite of APIs that offer businesses access to brilliant services and new partnerships that establish new revenue streams. The issue for SMEs is that these services are only sold to big corporations that have enough volume to make it worth it for the banks. This is where Fintechs come in.
Businesses like Equals Money can act as the “middle man” for businesses, as they are 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 a personalised service at the leading providers, that links them to a complex network of banking relationships and services.
Commercial versus retail banking
It’s worth highlighting that banks offer great out of the box business solutions. They provide low-cost transactions in local payment networks and an account which 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 where their priorities lie.
Banking can be split between commercial and retail. Commercial banking makes money on tight margins due to high flow volumes. With the tighter margins, banks will focus on businesses that they can receive high flows from and provide simple solutions for. 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. 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.
Retail banking makes money from high margins with 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. An offering with prepaid expense cards and shared virtual cards works much better for a business’s 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, and leads them down the road to Fintech companies. Being able to still get 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.
The importance of building relationships
It’s easy to talk about the current climate of uncertainty, but many businesses are coming to grips with the instability and proactively seeking solutions. One of the ways of working that helps both businesses and the partners they work with, is developing closer relationships with providers and working as an integrated unit, whether you’re an SME or corporation.
Integration with banks can be complex and require a lot of legwork from the business’s side. File formats aren’t consistent across the banking world, and businesses who 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.
At Equals Money we combine a range of services. 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 payments solution that works for them.
It’s clear that banks and Fintechs offer different services so it’s important to know which one to choose to match your specific business needs. While banks are still the powerhouses of the payments world, specific needs such as international payments or working in partnership with other organisations are often better served by Fintechs. By leveraging existing relationships with banks, Equals Money takes the complexity out of payments for businesses of all sizes and sectors.
