Banks are warned against failed core strategies, as time runs out to modernise.

Source: TechCentral

Banks around the world are rushing to upgrade legacy systems that are placing them at a significant disadvantage in a time when they are already challenged by neo banks that have none of the same infrastructural baggage. But as RFPs mount up, the C-suites have been warned not to adopt a core migration strategy that could come back to bite them.

The IDC says global Financial Institution (FI) spending on legacy payments technology is expected to grow 7.8% from $36.7 billion in 2022 to $57.1 billion in 2028. However, this increased spending on outdated systems is contributing to technology budget constraints and mounting technical debt, all of which hinders innovation and risks the banks’ relevance to an already fickle consumer.

Nonetheless, FI leaders are coming under growing pressure to take action. Research from McKinsey found that operating costs for banks still running outdated cores averaged 10 times higher than those with next-generation core systems. And there is no time to lose, with IDC cautioning that the cost of delaying migration is also increasing, saying banks that fail to migrate to a future-ready platform can potentially miss out on a 42% increase in additional payments revenue and savings on legacy costs of up to 21% annually.

“There are a growing number of RFPs focussed on core migration at the moment with banks looking to migrate off their legacy infrastructure. There are currently only three options open to CTOs: Rip and replace, which almost never works; co-existence; and then what the industry refers to as an at-the-edge solution. We believe, no matter the size of the bank, there is only one solution that will work, and has a proven track record of working, and that is co-existence,” says Sergio Barbosa, CIO of enterprise software development house, Global Kinetic, and CEO of its open banking platform, FutureBank.

Big bang could spell big trouble

The rip-and-replace methodology of migration has been the primary option for replacement and upgrades to core banking systems for many years. However, migration delays and failures with this big bang method have given most technology leaders pause for thought.

Industry specialists liken switching a bank’s entire customer base to a new banking core to swapping out a plane’s engine midflight; a risky process with the danger of highly disruptive errors, and even catastrophic failure.

“In our experience, rip and replace has never worked well in practice. These types of large-scale, big-bang migrations often end up being very lengthy projects that require banks to completely shut down their existing core systems before migrating. There are too many technical challenges and integration points all of which make a full rip-and-replace very difficult to execute successfully,” Barbosa says.

Greenfields are attractive but come with big Caveat Emptors

Building a new platform at the edge involves building an additional, new core banking platform that sits separately from the bank's existing legacy core system. The new at-the-edge or greenfield platform operates in parallel with the old legacy core, but it is not directly integrated or connected to the legacy system. The idea is that over time, the bank would migrate customers from the legacy core to the new edge platform. The expectation is the old legacy core would be deprecated and phased out as the new platform takes over.

This approach aims to limit the implementation risks of full core migration or rip and replace and can even be more cost effective. However, not all banks can justify launching an entirely new proposition, which comes with its own risks and carries high customer acquisition costs.

There have been many industry examples of successful at-the-edge approaches, including the often referenced Marcus by Goldman Sachs. This greenfields offering was built from the ground up on new technology and positioned as a digital-first brand underneath the parent’s umbrella. The bank’s retail unit ended 2020 with $97 billion in deposits and has been used as proof point for this methodology. But it is not without its pitfalls.

“Without direct integration between the new and old cores, the customer experience suffers as they have to manage accounts across two separate systems. The new edge platform often fails to gain enough momentum and traction to successfully replace the entrenched legacy core. What’s more, in many cases, the old legacy core ends up never being properly deprecated, as the new platform fails to fully replace it,” Barbosa explains.

An incremental and integrated approach, where two is better than one

An incremental approach to core banking modernisation is quickly gaining industry traction.  Co-existence, described by some as the ‘sidecar’ approach to core banking modernisation, allows FIs to establish a separate core banking system that coexists alongside its legacy core. And the new core is only responsible for servicing a limited subset of specific services, products or customer segments.

Integrating the new and old systems through integration software and platforms like FutureBank gives banks a single view of the customer across both the new and legacy core systems. The bank can then deploy strategies to gradually migrate products, accounts, and customers from the legacy core to the new core. This could involve deprecating old products as they expire and moving customers over, or using tactical solutions to migrate small parts of the business incrementally.

“We see the co-existence option as the superior one. A phased approach means the bulk of the bank’s operations would continue to run on its legacy core, mitigating disruptions that may take place when implementing the new core. It also means businesses can de-risk their efforts with a phased tech transition, allowing leaders to assess the efficacy and ROI of the new core before gradually migrating more customers and products to the new one,” Barbosa shares.

Industry research bears his assertions out, with more than half of mid-market banks (those with $10 billion to $100 billion in assets) across six countries saying they favoured a progressive transformation to gradually reduce their dependence on legacy core banking systems. In fact, the IDC has said that 40% of global banks will be pursuing a sidecar or co-existence core modernisation strategy by 2026.

“We know of so many banks in the throes of migration initiatives and the problem for many will be that they have been kicking the can down the road, delaying things because it is a big scary thing. Shareholders are expecting strong returns and legacy cores are draining, and for many, there can’t be any more stalling. But now is not the time to be prioritising the cheapest solution. CTOs must take a prudent approach that will still allow rapid innovation, keep customers happy, but that won’t risk the entire bank. That’s co-existence. And a trusted partner that has the experience to guide you through the process,” Barbosa says.

The rise of mobile wallets, and why consolidation is coming

Source: TechCentral

Digital wallets are emerging as a transformative force, poised to reshape the way businesses interact with their customers.

These digital payment platforms are not only streamlining transactions but also unlocking a wealth of opportunities for organisations looking to out-innovate the competition. But banks and businesses must be wary of interoperability challenges and the risk of vendor lock-in if they hope to benefit from the inevitable market consolidation that is coming.

Digital wallets are enjoying robust growth. Worldpay’s Global Payments Report 2024 estimates digital wallets will account for 61% of e-commerce payments and 46% of point-of-sale payments worldwide by 2027.

The card schemes are also throwing their weight behind the payment method. Mastercard has just announced Mastercard Pay Local, which will allow consumers to make payments at more than 35 million merchants that accept these wallets. The company says the service has been geared towards markets where digital wallets are widely used including Latin America, Eastern Europe, the Middle East and Africa.

“Digital wallets offer a seamless, convenient way to manage consumers’ finances, store their identification and make payments with a simple tap or click. This level of integration and accessibility is particularly appealing in emerging markets, where traditional banking services have often fallen short in reaching underserved populations and are viewed as expensive,” says Pieter de Wet, business development lead at FutureBank. “For businesses, the integration of digital wallets presents a unique opportunity to enhance customer engagement, drive loyalty and unlock new revenue streams. By linking their services to these digital wallets, banks and retailers can tap into a wealth of customer data, enabling them to develop personalised offerings and targeted marketing campaigns.”

Opportunities abound when wallets open up

One of the most significant trends in the mobile wallet landscape is the proliferation of closed-loop wallets, which are tightly integrated with specific use cases, such as transportation or loyalty programmes.

“Closed-loop wallets, like public transport cards, have wide adoption, but money in the wallet is trapped. The true potential lies in the ability to ‘open up’ these closed-loop wallets, allowing users to leverage their stored value beyond the initial use case. By integrating closed-loop wallets with open-loop payment networks like Visa and Mastercard, organisations can unlock a new revenue stream through interchange fees, while also providing customers with greater flexibility and convenience,” says Sergio Barbosa, CIO of enterprise software development house Global Kinetic and CEO of its open banking platform, FutureBank.

If you can’t beat them

Historically banks have viewed digital wallets with some scepticism. Traditional banking models rely heavily on the interchange fees generated from card-based transactions. Digital wallets, especially closed-loop systems, can bypass these interchange fees, posing a direct threat to a significant revenue stream for banks.

The disintermediation of the customer relationship could also pose a threat. Digital wallets have the potential to become the primary interface between consumers and their financial services company, potentially diminishing the direct customer relationship that banks have traditionally enjoyed.

“Rather than fighting it, banks should be finding ways to participate in the very big upside wallets offer. What’s more, the entry of non-traditional players, such as tech companies and retailers, into the mobile wallet space can introduce new competitive dynamics that banks must be ready for. However, ensuring compliance and protecting customer information can be a complex and costly endeavour. The integration of sensitive personal and financial data within mobile wallets also raises significant regulatory and security challenges that banks must navigate,” De Wet cautions.

Overcoming the interoperability challenges

The number of wallets in the market is growing exponentially, but the FutureBank leadership believe this is not sustainable and consolidation will be the natural result. However, this process will undoubtedly be hindered by the interoperability challenge.

“The wallets must either consolidate commercially, or there needs to be a technology solution. The schemes aren’t going to do point-to-point integration with every wallet offering. There will need to be consolidation around the payment rails and tech infrastructure for market consolidation to really work. Unfortunately, interoperability is a major challenge,” Barbosa says.

A large part of the problem is vendor lock-in. When a business is locked into a single vendor’s platform or solution, it loses the ability to integrate easily with other providers or platforms. This can hinder its ability to adapt to changing market conditions or customer needs.

Vendor-locked solutions often come with a pre-defined set of features and functionalities, leaving little room for customisation to meet the unique requirements of the business.

“Our clients are acutely aware of the need to stay agile. Our pre-built adapters and integrations with all the major payment schemes and banks have been a big help to streamlining the onboarding process. This agility is particularly valuable in the rapidly evolving mobile wallet space, where time to market can be a critical differentiator,” says De Wet.

“Beyond the core integration, our clients want the ability to design and implement additional features and services on top of the wallet platform. This includes everything from gamification and loyalty programmes to AI-powered enhancements, allowing businesses to create a truly differentiated and engaging customer experience.”

Choosing the right integration partner

Barbosa says banks and retailers must be proactive in embracing these transformative technologies.

“Choosing the right integration partner means businesses can navigate the complexities of wallet integration, unlock new revenue streams and enhance customer loyalty – all while maintaining the flexibility to adapt to the constantly evolving market demands. The future of payments and identity management is undoubtedly digital, and digital wallets are at the forefront of this revolution,” he says.

Read more articles by Global Kinetic and Future Bank on TechCentral.

FutureBank brings rapid integration and modernisation to Mastercard Engage’s global customers

FutureBank, a leader in open banking and payments technology, has been accepted into the Mastercard Engage network as a Digital First partner. The move will allow Mastercard customers to fastrack their modernisation efforts through the FutureBank platform’s unique integration technology that allows banks and fintechs to quickly connect to the best banking capabilities on the market.

Engage, Mastercard’s global partner network, offers its customers access to a qualified network of technology and fintech partners so they can rapidly build, deploy and grow Mastercard payment solutions in an easy and cost effective way. In 2022, more than 150 Engage partners helped their customers deploy innovative solutions on more than 500 million accounts using Mastercard products and services.

Together with Mastercard, FutureBank will work on the problem of instant issuance and instant credit scoring in emerging markets. This will help ensure qualified customers can quickly access credit, boosting financial inclusion. In addition to this there will be a strong focus on helping legacy banks globally modernise their platforms to enable the instant issuance of cards.

“FutureBank has a proven track record of helping banks and fintechs accelerate time to market by making it easier to embed vital new financial services and make them available to their customers and partners. Far too many banks are still operating on core banking systems that are encumbered with technical debt and struggling with the challenge of integrating older infrastructure with innovative cloud based fintech offerings. Our integration layer provides a bridge to connect core banking and modern fintech to easily launch innovative new financial products and Mastercard saw the benefits this could deliver to banks, irrespective of their size, location, or technology footprint,” explains Sergio Barbosa, CEO of FutureBank.

Participating banks will also benefit from FutureBank’s sandbox environment, which provides mock data and code snippets to code against its platform in real time, no matter the language. An online account test simulator and SDK allows developers to test real world scenarios and craft tailormade embedded finance solutions that answer their customers’ unique requirements. FutureBank’s own extensive partner network also provides its customers with sought after capabilities around KYC, crypto, security and more.

“The Mastercard Digital First Program aims to assist banks in their critical journey to modernise and digitise their offerings. A surprising number of banks still struggle with this due to factors like internal capability constraints and budget availability. FutureBank’s platform already has many of the major core banking adapters in place, enabling the rapid and cost-effective integration of Mastercard products as well as other fintech options,” explains Pieter de Wet, Global Business Development and Partnerships Lead of FutureBank (also referred to as ‘The Sales Guy’).

Giving context to how efficient the integration process can be, Barbosa shared that FutureBank reduces integration costs by up to 85%, supports up to 80% of customer-facing

functionality off-the-shelf, and natively integrates with the majority of core banking infrastructure today, making it the most compatible banking platform in the market.

Becoming an Engage network partner will also deliver meaningful benefits to FutureBank.

“The partnership affords FutureBank a unique opportunity to extend our global footprint. The successes of the network are well known and we are excited about the prospect of working more closely with many of these respected partners. Collaboration has been at the heart of FutureBank’s culture since our inception and this partnership will allow us to work side by side with other industry innovators, which can only benefit our company and our existing customers,” Barbosa says.

FutureBank and Paymentology partner to deliver instant issuance

Source: TechCentral (13 December 2023)

Open banking and embedded finance platform FutureBank has announced a partnership with leading global issuer-processor Paymentology to provide banks and fintechs with streamlined integration to modern card issuing and processing technology, enabling instant issuance of virtual cards.

Paymentology provides banks, fintechs and telcos with the technology to issue and process any type of physical or virtual card through its multi-cloud platform, offering both shared and dedicated processing instances. The company operates in over 50 countries bringing a deep, local market knowledge across 14 time zones.

FutureBank is an open banking platform and fintech marketplace that helps banks, brands and fintechs integrate new banking and financial service products into their core systems and deploy them at scale with minimal cost and effort.

FutureBank has now joined forces with Paymentology to solve a critical business need in the financial services world. The collaboration of the two companies enables instant issuance of virtual cards even for financial institutions constrained by their core legacy banking systems, offering traditional banks a digital edge and speed without the need for a major replacement.

Instant issuance is a game changer

One of the payment challenges facing banks and fintechs globally is the ability to issue card payment instantly to their customers, individuals and businesses. Today, legacy core banking systems work in batch environments, while modern fintech use cases and user journeys require near real time responses. FutureBank and Paymentology tackle this issue at its source by enabling instant insurance through deep integration of both platforms, allowing for both virtual and physical cards to be available for use immediately upon request. Instant issuance allows financial institutions to print their customers’ payment cards at the time of onboarding and order or display them instantly as virtual cards on a mobile phone.

“The partnership solved an acute pain point. Paymentology’s platform enables instant issuance of tokenised cards, with easily configurable controls, and FutureBank’s integration capabilities into a range of existing core systems enables issuers to accelerate product development velocity in co-existence with their legacy systems. This combination enables even the most legacy of core banking infrastructures to participate in the modern payment ecosystem,” said FutureBank CEO Sergio Barbosa.

Keeping cards top of wallet

“Allowing institutions to instantly produce and activate cards meets the growing expectation of younger and digitally-savvy customers who are used to services on-demand. If customers can open an account on a digital platform in a matter of minutes, why would you make them wait days or sometimes weeks to receive their payment card? Instant issuance is a valuable addition to the customer journey that banks, retailers and MNOs are striving towards. The goal, after all, is to get your customer securely transacting as fast as possible,” Barbosa shares.

“Banks and fintechs globally reach out to Paymentology with a consistent problem statement: They are under pressure to keep up with more agile competitors who are developing products faster and are capturing market share. Examples include payment via mobile phone, wearable payment devices, targeted loyalty programmes and digital onboarding.

Image: Paymentology’s David Oppenheim

The partnership with FutureBank will facilitate digital first product rollouts on top of existing core architecture, reducing cost, complexity and risk on their path to modernisation,” said Paymentology ecosystem partnerships global head David Oppenheim.

The two companies have already tested their partnership on several customers in the Europe, Middle East and Africa region, including the launch of a neobank and the modernisation of an existing legacy bank.

Article source:

  1. TechCentral: https://techcentral.co.za/futurebank-paymentology-partnership-glopr/236862/ [13 Dec 2023]

FutureBank and Direct Transact partner for embedded finance in sub-Saharan Africa

Image: Christo Davel

Direct Transact, the largest independent provider of banking and payment solutions for banks and brands in South Africa, has teamed up with open banking platform and fintech marketplace FutureBank to accelerate its technology platform capabilities further. The partnership will facilitate the rapid roll-out of embedded finance in sub-Saharan Africa.

Embedded finance is the fintech practice of building financial products or services into non-financial brand customer experiences. It takes collaboration between the brand on whose platform the financial moment is offered, and the financial institutions and fintech partners who enable the financial feature to make it happen. Classic examples of embedded finance include perfectly timed insurance, quick payment solutions, or buy-now-pay-later offers during online checkout.

Launched in 2002, Direct Transact was the first provider of outsourced core banking capabilities and financial services software to more than 70% of South African banks. It currently processes over R40 billion monthly. In addition to being a technology enablement partner to banks, it also helps brands launch financial products and solutions via alliance banking and embedded finance.FutureBank specialises in providing great abstraction layers to banks and financial technology companies

FutureBank, meanwhile, is an open banking platform and fintech marketplace that helps banks, brands and fintechs globally integrate new banking and financial service products into their core systems and deploy them at scale with minimal cost and effort.

“Direct Transact believes modern and intelligent banking should be able to plug in and configure composable solutions from exciting third parties who bring new user-friendly elements to the banking experience. FutureBank is a niche fintech company that helps us further enhance our existing capabilities,” said Direct Transact chief commercial officer Christo Davel.

“FutureBank specialises in providing great abstraction layers to banks and financial technology companies. Their technology speeds up and simplifies fintech integrations between banks and third-party fintech partners. Thanks to our partnership, Direct Transact’s interface layer is now even simpler, allowing faster connection.”

Primed for growth

Direct Transact’s work with FutureBank has ideally positioned the company to address the rapidly growing embedded finance market in sub-Saharan Africa. The latest collaboration between the two companies builds on an established relationship and a shared vision for regional innovation and growth.

Accenture analysis has shown that embedded finance for the small and medium-sized business sector is set to boom and could capture up to 26% ($32 billion) of the global SME banking revenue by 2025.

“Embedded finance epitomises the collaborative innovation that African organisations thrive on. It allows multiple players to combine their strengths, allowing a whole new generation of nimble new players to leverage the foundations of established banks to reach new customers with relevant products and services.

“The partnership between Direct Transact and FutureBank will facilitate the rapid growth of embedded finance offerings, helping companies reach the scale they need to ensure sustainable growth,” said Sergio Barbosa, Global Kinetic enterprise software development house CIO and CEO of its open banking platform, FutureBank.

However, without the necessary technical expertise, delivering embedded finance services is not simple.

Image: Sergio Barbosa

“To seamlessly embed financial capabilities is technically complex, made more difficult by many banks’ rigid legacy systems. While secure and compliant, Direct Transact’s systems and technology are flexible. And, after our deployment with FutureBank, Direct Transact can rapidly offer more of its capabilities within its customers’ existing technology stacks. This means banks, payment providers and brands can rapidly design and launch new and exciting embedded finance offerings to their clients – solving today’s strategic and client needs and building tomorrow’s solutions today,” Davel said.

The nature of the partnership between FutureBank and Direct Transact promises a bright future for both organisations when it comes to embedded finance in the sub-Saharan region.

“Compatibility with Direct Transact’s core banking capabilities enables us to offer additional capabilities around core banking in the sub-Saharan market.  Our partner network is extensive and can benefit from our interoperability and partnership with Direct Transact as the leading core banking provider in the region,” Barbosa said.

The partnership also means FutureBank can offer Direct Transact’s robust, comprehensive core banking capabilities to their clients, who are notable players in the global fintech ecosystem. It’s a match made in fintech heaven,” Davel said.

Article source:

  1. TechCentral: https://techcentral.co.za/direct-transact-futurebank-embedded-kinpr/236392/ [05 Dec 2023]

FutureBank and IDVerse Partner to Fight Cybercrimes

London, UK – 5 September 2023  – The customisable and compliant embedded finance platform, FutureBank, has partnered with world-leading digital ID verification company IDVerse (previously known as OCR Labs Global) to further its digital transformation and accelerate customer onboarding through swift and secure digital identity verification (IDV).

Through this partnership, new FutureBank customers can access the IDVerse software as part of its offering. IDVerse customers looking for a middleware platform can connect their API credentials to benefit from FutureBank’s platform. 

Bank technology is clunky and rigid, and it needs forward-thinking technology partners to stay up to date. Middleware platforms offer technological flexibility that banks and fintechs can’t build themselves, thus preventing downstream fraud and supporting the full customer journey. 

FutureBank is an integration platform for core banking providers that embeds finance services. It acts as the glue between a bank and a third-party provider they want to integrate with. It helps banks and fintechs launch new products better, faster and more securely.

IDVerse is the most certified Identity Service Provider (IDSP), with 20 certifications for the Right to Work, Right to Rent and Disclosure and Barring Service (DBS) from the United Kingdom’s Digital Identity & Attributes Trust Framework (DIATF). 

Through its Bias-Tested AI tested technology, IDVerse is pioneering the use of generative AI to train deep neural network systems to protect against discrimination on the basis of race, age and gender.

Sergio Barbosa, CEO at FutureBank, said, “Generative AI is breeding many different fraud types. With ChatGPT, fraudsters can create very authentic documents and profiles for people at a low cost. We were impressed by IDVerse’s capability to stop fake IDs from making their way through the system and its fully automated approach that works better than humans.”

Barbosa continued, “Cybercrime is currently the third biggest economy in the world, and predictions show that in the next 18 months, it will be the biggest economy in the world. We are delighted to partner with IDVerse to protect our customers from unwanted attacks.”

Russ Cohn, General Manager EMEA at IDVerse, added, “It is already very easy to create a realistic fake person in as little as 15 minutes using online tools readily available on the internet. Synthetic media is becoming the new tool of choice for fraudsters looking to make money. We estimate that there is a 400 percent year-on-year increase in the use of deepfakes in creating fake identities.”

Cohn continues, “Our fully automated identity verification system can offer FutureBank customers a reliable solution to spot deepfake accounts that fraudsters are increasingly trying to create. IDVerse’s cutting-edge technology maps the facial genome and can detect below-the-skin activities, such as a heartbeat changing the colour of the skin, which the human eye cannot see. These natural yet invisible patterns from faces help verify that an image is of a real human, not a deepfake.”

For more information, visit www.idverse.com

Data sources and PR mentions

  1. https://www.statista.com/chart/28878/expected-cost-of-cybercrime-until-2027/
  2. IDVerse Article
  3. FFNews
  4. FinancialIT
  5. Finextra Press Release

The Disruptive Force of Fintech: How will these Top 5 Trends evolve in 2023?

The Disruptive Force of Fintech: How will these Top 5 Trends evolve in 2023?

The finance industry has undergone a major transformation over the last decade, driven by the rise of fintech. But are these trends here to stay, or just a passing fad? Let's dive into the top five fintech trends and examine their future potential:

  1. Artificial Intelligence and Machine Learning - AI and ML have been hailed as the future of finance, but are they really? While these technologies can automate certain tasks, they still have limitations and can make mistakes. It is predicted that AI and ML will play a major role in finance, but it will not fully replace human decision-making. For example, in recent years, several banks have implemented AI-powered chatbots to provide 24/7 customer service, but human oversight is still required to resolve more complex issues. Moreover, according to a recent survey, about 60% of consumers trust human customer service representatives more than AI-powered chatbots.
  1. Digital Payments - The convenience factor is driving the shift towards digital payments, but will this trend continue to grow? It is predicted that digital payments will continue to increase in popularity, with more people valuing the speed and ease of digital transactions over traditional methods. For example, mobile payment platforms such as Venmo and PayPal have seen rapid growth in recent years, and there is rumour of Twitter becoming a payments platform.  More businesses are now accepting digital payments as a result of the pandemic. In addition, the rise of contactless payments, enabled by near field communication (NFC) technology, has further fuelled the growth of digital payments.
  1. Blockchain - Blockchain-powered platforms and ecosystems are often touted as the solution to all financial problems.  We are through the trough of disillusionment, but we are yet to see wide adoption. It is predicted that blockchain will see widespread use in finance in the coming years, as the technology matures and more people become familiar with it. Several countries are exploring the use of blockchain for central bank digital currencies, which could potentially revolutionize the financial system. Moreover, blockchain has the potential to increase transparency and security in financial transactions, as well as reduce the costs associated with intermediaries.  As we have seen with recent events like what happened to FTX for example, the volatility in this space is alarming to many individuals and institutions.
  1. Open Banking - Open Banking has the potential to change the financial landscape, but will it actually be able to deliver on its promises? It is predicted that open banking will continue to grow, as more financial institutions open up their data to third-party providers and consumers become more comfortable sharing their financial information. In recent years, several countries have implemented open banking initiatives, allowing consumers to easily access and compare financial products and services from multiple providers. Additionally, open banking has the potential to increase competition and drive innovation in the financial industry, as well as provide consumers with more control over their financial data.
  1. Neobanks - Neobanks have disrupted the traditional banking industry, but are they here to stay? It is predicted that neobanks will continue to challenge traditional banks and win over consumers, but it remains to be seen whether they will be able to compete in the long run with established players in finance. For example, neobanks such as Monzo and N26 have attracted millions of customers with their mobile-first approach and low fees, and traditional banks are starting to respond with their own digital-only offerings. However, the challenge for neobanks will be to maintain their growth and compete with traditional banks, who have the advantage of established customer bases and established trust in the market.

The fintech industry is full of potential, but also full of uncertainties. These 5 trends are set to create the foundation of our future financial landscape, but in 2023 and beyond we will see them disappear into the background for most individuals and institutions with their convergence into, and the rise of, embedded finance.  There will be consolidation in the banking ecosystem across traditional banks over the next few years as they compete to remain relevant, and brands will begin to claim ownership of the financial data associated with individuals and institutions.  The individuals and institutions in turn will relish in the convenience of a world where they don’t really need to understand the intricacies of the financial ecosystem, they can just focus on doing whatever it is that they’re doing.  

Infographic on the Top 5 Fintech Trends in 2023

Brainstorm Feature: Finding the data to reach Africa’s unbanked

Article Source: Brainstorm October 2022 - ITWeb | Featuring Sergio Barbosa, CEO, FutureBank

Transforming the Know Your Customer verification process will unlock countless opportunities for Africa’s unbanked to participate in the digital economy.

Sergio Barbosa is featured in ITWeb's Brainstorm Publication by Joanne Carew (14/10/22).

Read the PDF version of the blog below:

Finding-the-data-to-reach-AfricaDownload

Subscribe to ITWeb's Brainstorm to read more articles from the Business Technology Magazine here.

Reaching new customers through fintech partnerships

Sergio Barbosa, CEO, FutureBank

Co-founder and CIO of enterprise software development house, Global Kinetic, Sergio directly heads its open banking platform, FutureBank. A skilled software engineer, innovative product developer, and keen business strategist, he has participated in several notable fintech milestones, including building the southern hemisphere’s first digital-only bank all the way back in 2002.

Back in October, I made an argument for open banking’s relevance to regional American banks and credit unions. I listed several ways that open banking platforms could benefit institutions like these – specifically those with under a billion dollars in assets.

My focus in this post is on the enormous potential banking-as-a-service (BaaS) and banking-as-a-platform (BaaP) have for helping traditional banks reach new customers, including those that were uneconomical, unreachable, or unheard of in a physically restrictive and data deficient banking paradigm.

Platforms that leverage APIs and facilitate integration can enable banks to benefit from fintechs’ data-driven and customer-centric approach to innovation by offering them the embedded finance foundation that fintechs need in return for greater customer acquisition on the bank side.

They can also enable banks to develop highly engaging new offerings faster, more efficiently, and with far less risk than before. Both fintechs and banks could leverage a combined customer data set in various ways – with their approval, of course.

Let’s look at three broad opportunities banks and credit unions have to gain new customers or members through open banking partnerships.

Meeting the needs of niche markets

What bank is the best fit for serial house restorers? And for TikTok entrepreneurs? Convenience store franchisees? Everything counts in large amounts, as the song goes, and the economies of scale that digital technologies can provide could bring millions of potential customers within reach of the smallest bank. Sifting through them, you’re bound to find a market, even a very niche, geographically distributed one.

Going “niche”, as they say, means targeting market segments and communities united by emotional or cultural bonds, personal concerns, and unmet financial needs that have little to do with geography. 

US banks and credit unions have long focused on the needs of narrowly-defined communities, but their geographical footprint has almost always been limited by cost considerations related to their physical branch and ATM networks, if not by their charters too.

No more. Digital channels have freed them – and their competitors – to market to prospects and serve customers far beyond their home county, state, or region without much additional outlay. To get a good return on investment, however, they have to hone their value proposition carefully – and that may require further specialization.

Going “niche”, as they say, means targeting market segments and communities united by emotional or cultural bonds, personal concerns, and unmet financial needs that have little to do with geography. These groups may always have been there – ethnic, racial, or sexual minorities, for example – or could be entirely new – think of crypto-asset traders and gig economy workers.

It’s an approach that many smaller financial institutions see as a way to differentiate themselves from competitors large and small, gain customers, and profit from value-added services delivered through low-cost channels – even as banking infrastructure and traditional banking products are commoditized.

Some examples:

All of these businesses reflect something profoundly different about the open banking paradigm: banking is increasingly conceived of as something rooted in everyday life, occasioning a far wider range of interactions at many more moments in the day.

High-context recommendations – product and service cross- or up-sell, meaningful communication and useful advice, shortcuts to the next step on any given journey – these all depend on knowing your customer intimately and understanding the motivation behind their transactions.

Fintech partnerships help these financial institutions:

Meeting the needs of the unbanked

The US federal Community Reinvestment Act obliges financial institutions to serve neighbourhoods across a range of incomes in their catchment, but industry consolidation, commercial imperatives, as well as patchy enforcement have seen low-income communities – urban as well as rural – hit disproportionately hard by branch closures spanning decades. It’s a leading cause of financial exclusion, together with lack of government ID, insufficient credit history, and unaffordable or unpredictable service fees.

Open banking platforms can go a some way to addressing financial exclusion while helping mid-sized banks and credit unions reach new customers at reduced risk. 

According to the US Federal Reserve, 6 percent of adults in the United States are unbanked, while 16 percent are under-banked (the FDIC has similar figures). These millions of Americans represent frustrated human potential and an untapped market. Digital service provision is not a cure-all, as the Fed pointed out just before the onset of the pandemic, but open banking platforms can go a some way to addressing the problem while helping mid-sized banks and credit unions reach new customers at reduced risk.

Partner-provided data concerning devices, payments, online and social media interactions, etc., combined with third-party AI systems help manage risk and improve efficiency, so that the market can be served more cheaply and effectively.

Fintech partnerships help these institutions:

Meeting the needs of other businesses’ customers

Open banking – BaaS in particular – has opened many senior executives’ eyes to the exciting potential in distributing financial services over third-party channels, essentially reaching and making money from people and businesses with which their institution does not have a direct relationship.

With embedded finance, the bank brand may take a back seat to another – a racing car maker, a global charity, even a Kardashian or two – but the opportunities to extend your reach are immense. 

These third parties are often fintechs, but they could be any enterprise looking to leverage banks’ money-moving infrastructure, rich troves of data, and competencies in areas like fraud detection and prevention, identity and access management, and regulatory compliance. Banks, in turn, either gain revenue directly from the fees they charge or benefit from their products’ relatively cost-effective exposure to a wider, captive audience.

Some examples:

Embedded finance is an especially promising development. It allows financial services providers and an almost limitless number of non-bank brands to integrate financial services seamlessly in websites, apps, games, and the point of sale for greater convenience and deeper engagement. The bank brand may take a back seat to another – a racing car maker, a global charity, even a Kardashian or two – but the opportunities to extend your reach are immense.

BaaS partnerships help these institutions:

You don’t have to be a fintech startup to be excited by the future these partnerships will help build. Regional banks and credit unions have as much to gain as any other stakeholder, and with the right partners and a few good ideas, they will.

FutureBank is a fintech marketplace and technology platform enabling banks and credit unions of all sizes to test a wide range of third-party products at scale. There is minimal upfront cost and significantly less risk involved in making an investment. Compatible with over 6000 financial institution back-end systems, we offer a single integration point for fintech technologies for rapid time-to-market.

Looking to explore new opportunities in open banking?

Contact FutureBank for a presentation.

Solving the software integration challenge, FinTech's last mile

Sergio Barbosa, CEO, FutureBank

Co-founder and CIO of enterprise software development house, Global Kinetic, Sergio directly heads its open banking platform, FutureBank. A skilled software engineer, innovative product developer, and keen business strategist, he has participated in several notable fintech milestones, including building the southern hemisphere’s first digital-only bank all the way back in 2002.

Eyes on fintech's last mile

Many of the banks and credit unions that we speak to are no less “progressive” than their tier-one peers when it comes to recognizing the potential of platform banking or banking-as-a-service. They just don’t have the same budgets to spend on new talent, in-house innovation hubs, and large-scale partner programs.

You’ve got to spend money to make money though, right? That’s where fintechs can help by providing banks with reasonably priced know-how and out-of-the-box financial services developed with an entirely new focus on the digital end customer.

There are new sources of revenue to be gained in both directions, of course. My focus in this blog post is, however, not on the opportunities for value creation and exchange in bank–fintech partnerships – as central as that topic is to everything we do at FutureBank. Today, I want to look at a common hurdle for fintechs getting to that point: software integration. It’s fintech’s last mile.

Software integration: Here be monsters

The promise of a stress-free go-live – “fast go-to-market”, “rapid ROI”! – typically features in every piece of fintech marketing material, with assurances based on the modern, lightweight deployment model and excellent APIs. Things tend to run differently in reality, however, and fintechs often find themselves spread thin when integrating their technology at the bank.

Implementation teams are usually ignorant of what they will find at the client. Even smaller banks have many moving parts, constituencies, and the various systems they use are technologically complex and interface in unpredictable ways. The scale of banks’ regulatory burden, especially as it pertains to digital security and risk management, is also something few fintechs really understand, despite it being a factor in nearly every answer banks give to questions fintechs ask.

When the inevitable complications arise during integration, time is lost and costs – all the fintech’s own – pile up. Progress updates may remain cordial, but the project draws senior staff away from other important aspects of their business, including landing the next sale and building the next killer feature of their product.

Sound familiar?

Solving the software integration problem for fintechs and their customers

As enterprise software integration experts of long-standing, my colleagues and I at Global Kinetic have seen this dynamic – or something like it – in play many times. Knowing the nature of the beast ahead of time would help providers plan and act with speed and precision, freeing them sooner to return to what they enjoy doing most.

That’s why we built FutureBank, a banking-as-a-service platform that integrates into the world’s most widely deployed core banking systems. It provides fintechs with a fully kitted-out digital banking sandbox for testing their software integrations against these and helps determine the level of custom work required for non-standard or customized versions out there.

Flipped 180 degrees, FutureBank becomes a fintech marketplace where banks and credit unions are able to discover, test, and deploy pre-integrated third-party products and services at low cost, with considerably less risk than they would before. We have many products on the platform, and we onboard new providers every month.

What is the experience like for our fintech customers? I’ll describe a couple of case studies in future blog posts.

Partnerships are the lifeblood of open banking. Contact FutureBank to discover how we can help you work better together.

Read our previous post here: Regional banks have a big opportunity in open banking