Banking in the age of disruption

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Banking in the age of disruption: Disrupt or decline

By Michael Sassoon, Executive Director Sasfin Holdings Limited

Three’s a party

“An iPod, a phone, an internet mobile communicator... these are NOT three separate devices! And we are calling it iPhone! Today Apple is going to reinvent the phone. And here it is.” Steve Jobs – launch of the iPhone 


The cause of the demise of many market leaders is ignoring disruptors.

The original cell phone did not allow access to third-party software. The cell phone company endeavored to own their clients through selling their applications. But, this is where the smartphone became the hero. Their operating systems were open to the integration and development of third-party software.

 

And Banks?

Banking is also being reinvented but legacy banks are not behind the wheel. The rise of fintechs* (financial technology) and APIs** (Application Programming Interfaces) are key drivers of this disruption.

Legacy banks operate in the same closed system as the original feature phone. Banks love to own their clients. They innovate within that context of “client ownership” but the world is changing so fast and the opportunities out there are so vast that a client who is unable to access the financial web through their bank is missing out on so much. 

But, things are about to become interesting for banks, whether they are for or against open systems. As the Revised Payment Service Directive (PSD2) is implemented in Europe in 2018, the monopoly on client account data and payment services will disappear. Banks will be obligated to provide third-party providers access to their clients’ accounts through APIs. This will enable these third-parties to build financial services on top of banks’ data and infrastructure. These pressures will reach our shores in the foreseeable future.

Fintech vs traditional banking

Fintechs and APIs will assist businesses with their added functionality, but they are still not alternatives to a traditional bank. Banking is compliance and regulation-heavy and this plays a crucial role – it keeps your money safe. Regulators are starting to watch fintechs very carefully - their new focus is on what they call shadow banking, which is essentially the provision of loans, cross-border transfers and other financial services, in an unregulated environment or manner.

Fintech’s need to be cautious as regulatory inexperience can lead a fintech, that doesn’t know better, to make a regulatory blunder and shut its doors for good or worse expose their clients to unforeseen risk.

The sweet spot

The ideal relationship is where businesses are not forced to choose between fintechs and banks, but where they  can benefit from the integration of both the security and expertise of traditional banks and the benefits of the latest technovations. 

 

At Sasfin, we want to assist our clients in integrating their banking with other web-based services to help their businesses excel. For example, Sasfin is the only South African bank to offer direct feeds into Xero Accounting Software. This allows our clients’ data to feed directly into their accounting software without additional admin or delays. 

We integrate with smart fintechs that allow our clients the ability to engage in the financial web while knowing that their money is safe. 

Sasfin is only at the beginning of this journey of open based integration but this approach ensures that clients receive what they deserve in the age of disruption and more.

Banks need to work with fintechs in providing businesses more easy-to-use business and financial tools to help business thrive.

We are in the era of “disrupt or decline” and embracing disruption goes beyond what most banks are comfortable with.  Successful banks will offer the best of both worlds: the security that comes with years of experience and expertise AND the best that fintechs have to offer.

 

 

*Fintechs are businesses that use technology to create new and often easier to access and faster financial services.

**An API is code that allows software to communicate with each other that acts as a “digital middle man”.