In a sort of financial “Scooby-Doo” moment, J.P. Morgan Chase CEO Jamie Dimon ignited controversy in mid-January, telling managers of the global banking behemoth that when it comes to FinTechs, “absolutely, we should be scared s—less” about these entities.
Rebecca Mann, head of enterprise partnerships, commercial development, Western Union (WU), said the situation may not be so dire if banks “tech up” with plug-and-pay partnerships.
In a PYMNTS Trend Talk on why banks should challenge FinTech encroachment into the global remittance market, Mann spoke about how quickly FinTechs are moving to take over remittances — sans banks.
Noting that in 2014, banks controlled roughly 95 percent of digitally-initiated peer-to-peer (P2P) cross-border money movement transactions, Mann said, “if you fast-forward to today, that has dropped by almost 20 percent. If trends continue as they are now, banks will have only 50 percent share of this market by the year 2024. Is this a problem for banks? The problem is more than losing cross-border wire remittance revenue streams — it is having your loyal customers spread their banking needs across many providers.”
She also has a very big answer: “Customers are leaving for a better experience at FinTechs and digital money transfer operators.” That means customer experience (CX), the mysterious force now exerting massive influence on global money, is at the root of the issue.
By identifying not just where, but why they’re losing ground to FinTechs, Mann said she believes banks can do a lot to retain customers who are being lured by the siren song of smartphones. It starts, not surprisingly, by acting less like a traditional bank and more like the non-bank newcomers.
“When consumers do cross-border money movement with a traditional bank through correspondent banking, the first problem is the speed of delivery,” Mann said. “This can be tremendously slow, up to 10 days. The second is the price. It can tend to be expensive, both in terms of fees and [foreign exchange (FX)]. The third is that in many cases, it’s not very user-friendly in terms of a savvy digital service, but the last — and possibly the most important — is that it’s not very transparent.”
Calling out the “multiple intermediaries” that are taking out fees along the line in many cross-border payments, Mann noted that the sender and receiver often don’t even know how much money will arrive, or when.
“You can imagine why the FinTechs and the digital [money transfer operators (MTOs)] who have come in with a significantly superior solution are leapfrogging [banks],” she said.
Banks Losing Lucrative Lines To FinTechs
Payments tech is moving at near-lightspeed lately, and banks are finding themselves outpaced (if not outplayed) by FinTechs’ agility and pinpointed focus on doing one thing really well — like peer-to-peer (P2P).
Mann said she thinks that banks ceded international P2P to FinTechs too early, underestimating its potential. It’s now a tug-of-war over a profitable line that banks need back.
“The revenue yields on [cross-border P2P] are closer to 3.5 percent, whereas on the corporate side, it’s closer to 0.1 percent,” Mann said, noting that while most banks don’t view cross-border P2P as a major revenue contributor, almost all of them, according to WU intelligence, see it as a top strategic focus.
Change is happening — and not just because of calls to action like that of JPMC’s Dimon.
“This reminds me a lot of the Venmo–Zelle story in the United States, where the traditional banks should be the rightful owners of [P2P] domestic transactions,” Mann said. “But here comes a FinTech with this very sexy solution for P2P, and they took the market by storm.”
In that case, banks rebelled and formed Zelle, “and they’re actually … beating Venmo in the market today,” Mann said. “To me, this is a similar story. It’s the next Venmo-Zelle story for cross-border. If the banks can actually act fast and push back,” they have a very good shot at keeping and expanding on their clientele. But it’s still an “if” for too many bank players.
Banks, Big FIs Push Back With Smart Partnerships
As dialogue around partnerships and “build or buy” decisions deepen throughout the industry in 2021 — and with no treaty stopping FinTechs from continuing to disintermediate banks one service at a time — this year marks a decisive moment in the life of legacy banks and financial institutions (FIs).
As Mann told PYMNTS, “if you think about some of the major players offering cross-border money movement that are FinTechs, all of [them] may have an anchor in a cross-border use case but are extending into the territory of core banking. They’re offering prepaid cards. They’re applying for banking licenses, and customers are migrating … because [FinTech] end-to-end financial services are being served in a way that is very, very consumer friendly.”
Fast, easy and intuitive are the new consumer criteria, none of them exactly strong suits for legacy FIs — so “there’s more at stake for the banks than just one set of transactions,” Mann said. “The entire … core banking proposition for consumers for retail banking is a little bit at risk here, and it should become a strategic priority for banks on that basis alone.”
To get FIs into this digital flow, WU is furiously working with them to bring the trust and experience of its household name-brand money transfer service into white-label form.
Mann said she isn’t a DIY fan.
“To build your own consumer P2P cross-border ecosystem is extremely complicated coming from where I sit at Western Union, having done this for about two decades,” she said. “Let someone else do it for you.”
She added, “there are a couple of things to look for in a cross-border P2P partner for banks: No. 1, the network. How many account payout countries do they have? How many are in real time? Do they also offer local currency payouts? Did they offer wallet payout? These are all very important questions.”
Also, she said, it’s important to perform due diligence to ensure that cross-border and P2P partners “have a bank-grade … compliance program robust enough that it doesn’t create a compliance risk but creates a compliance competitive advantage.”
The final piece is white-labeling to retain a seamless flow while keeping a bank’s identity first, and reinforcing which FI or player in the process “owns” the relationship.
On that count, Mann said solution shoppers must ask, “is it flexible enough to give the bank the power to set the pricing, to do the marketing and just to pay a wholesale price?”
“And perhaps most importantly,” she concluded, “pick a partner who is customer-obsessed.”
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