Plugging Banks’ $500 Billion Hole

The predictions have been dire. Banks will be wiped out by nimble FinTech firms, intent on luring away consumers and corporate customers and the payments that come with them.

But it need not be so. In an interview with PYMNTS’ Karen Webster, FI.SPAN’s founder and CEO, Lisa Shields, said that FinTech may be revolutionizing banking and the way payments are done — but it can help banks hang onto and even grow their commercial B2B business footprints.

The business commercial banking segment is a $1.85 trillion business globally, according to Shields. Banks themselves have estimated that just under a third of that business will be contracted away to third parties in the next five to seven years, equating to roughly $500 billion.

“So while retail banking and consumer apps are sexy and everyone can intuitively understand Apple Wallet and what that means for you as a consumer, it’s more difficult to visualize what straight-through processing of an invoice means to a medium-sized or large corporation,” she told PYMNTS.

Commercial services are large and profitable for banks, said Shields, and corporate treasurers and CFOs are “increasingly willing to entertain” and adopt third-party services that can be customized and fit with each organization’s business needs.

Of the $500 billion moving to third-party contracts, Webster asked what would drive the lion’s share of that outsourced business. Within that flow, significant portions will come from paper payments moving to electronic form “in specialized ways to third parties …. [That] is going to be the dominant part,” Shields said.

These will be marked by a combination of traditional B2B payments and corporate purchasing done over cards. Customized cards can enable payments in ways that may be ideal for, say, the fishing industry in the Northeast versus the needs of an importer-exporter in an urban environment.

Webster asked if banks are looking to build capabilities internally or link with FinTech upstarts to bolster and supplement their own core practices.

“You see both approaches being adopted,” replied Shields, with “the largest global banks applying them both, in parallel.”

Those firms have the scale to survey the FinTech market and bet on one or two firms and execute the long, hard integration and vendor onboarding process to augment their capabilities, she said. That comes as FinTech firms have already exposed their services by API, which can be a compelling opportunity for banks eyeing collaborative efforts.

FI.SPAN, said the executive, removes some of the barriers to these efforts by partnering with multiple FinTech service providers across each class of service.

“The mantra in banking,” said Shields, “is no longer ‘Mobile first.’ It’s ‘API first.’”

But people in various businesses may not necessarily use APIs, she noted.

And in this arena, she continued, processes are not as simple as adopting an API to enable a mobile payment to a phone in Kenya. There are other considerations, such as KYB, risk, transaction monitoring and even interest rates. The FI.SPAN paradigm helps break this problem down into consumable components. The largest bites include aggregation and access to the applications themselves. Another big bite would include onboarding, Shields said, along with an auditable trail of activity even as the banks are “the service providers of record to their clients.”

There’s the option for the banks to undertake all of this as a white-label third-party service, “in which case [FI.SPAN] takes care of the technology and … integration,” Shields said, but the banks are responsible for pricing and selling to their own customers and all of the regulatory obligations.

At the same time, Shields said her firm curates the FinTechs and selects which ones will become part of the platform. The first module available here is for international payments, she said, where domestic banks can extend their ACH and wire services to be global in scope.

“The appetite on the provider side is there to partner with banks,” said Shields, and “the appetite for banks to figure out ways to service their clients into the future is there. It’s a matter of bringing those two pieces of the puzzle together in a way that makes sense for everybody.”