Web Summit insights: partnering smart in finance
At the Web Summit event in Lisbon, 53,000 people gathered to hear industry leaders give insights on everything from tech, to marketing, to finance, to industry trends. Here’s a snapshot of the panel discussion between Payoneer’s founder Yuval Tal and Rob Frohwein, co-founder of Kabbage, discussing with moderator, Tracy Isacke of Silicon Valley Bank, on innovation-at-scale and partnership up:
One of the main points of interest evolves around potential partnerships between financial institutions, and how these have the ability to change the trajectory of companies. Yuval Tal explains how in general banks are domestic, regulated by government, and as such are subject to monetary systems.
However, web-based institutions don’t share this global solution, which means that partnerships (particularly in payments) are critical to connect banks, thus enabling the movement of money between countries. However, this partnership is not the only success story; rather, it’s the foundation of how companies other than banks – such as start-ups and technology companies – partner up with local banks in local countries. It’s a win-win situation for the banks, the web communities, and the domestic players, helping to make the web global.
Are partnerships between PSP’s and banks changing?
Tracy Isacke of Silicon Valley Bank thinks there could be an historical backlash against the banks, who might not be the best partners. She questions whether there had been a shift in the way banks are working with payment service providers, and whether there are other companies that could make good partners.
Three types of companies
In answer Yuval comments that there are three types of companies working together; banks; financial companies that handle the money such as Kabbage and Payoneer; and companies that provide technological services for the previous two groups. What he sees happening over time is that banks become hubs of money, taking deposits and giving out loans – that is their core. The next group handle the money and give credit, or move the money, both by partnering with the banks.
The third group provide the technology such as KYC, compliance, cybersecurity, and various other auxiliary services. This provides room to shift over time, ensuring they are not in competition with the banks. Instead, the banks understand this shift, and how each company finds its unique place.
Banks, for example, do not have the same focus on software, and thus are slow to change their systems. Their responsibility lies in maintaining the stability of the financial systems in these countries, which holds them back from moving fast. The plus side is that this slow shift from the banks allows PSPs more room to be able to flourish.
Rob Frohwein sees banks as one type of partner. Any company that has a large audience of small business customers can be a partner. By providing services to small businesses or consumers, they offer services that look a lot like those of a bank. By providing capital to the customers of their partners, there is a beneficial impact on the ecosystem surrounding that company. As small businesses grow they consume more services from the company that connected them to the capital, creating a fundamental shift in financial services.
The challenges faced in certain countries
Another subject of discussion is whether some countries are challenging to get into, and how partners in these cases can assist each other. Yuval agrees that every country is rightly concerned with currency and the flux of money flowing in and out. The important aspect is to understand each country’s logic of how they manage their money. Having a partner helps you to appreciate the individuality of each country, such as India, Brazil and Bangladesh. By understanding the different mentalities, companies such as Payoneer are able to operate in 200 countries, working closely with domestic local partnerships.
Rob agrees, having learnt from experience the importance of making partnerships in individual countries. Becoming a lending organization in a variety of locations can be difficult, so partnering with banks internationally makes sense.
Telco’s as partners
A further source of partnership comes in the form of telcos, which Yuval thinks could prove to be the ultimate banking partners. By downloading an application and giving banks permission to access those areas that you typically allow Google to search, you provide any KYC to the bank.
Partnerships with telcos are likely to go a long way in the next few years due to the Anti-Money Laundering (AML) requirements that the central banks have.
Rob adds that telcos reach tons of small businesses, allowing them to spread their wings and move outside its traditional brands. This allows access to the small business market through great partnerships with these companies.
The future for financial services
So, what does the future hold for financial services, and what role will banks play in it? Is there room for startups to really influence a change?
Rob believes the PSD in Europe is important, and it’s crucial that banks open their data and infrastructure to customers who want to provide it to third parties. Open access to data banks will usher in a new era of competition, in the same way as telcos allowing number portability to a new cellular company increased competition in the cellular world.
Yuval believes there are two trends. First, as those non-bank companies that handle money increase, working with them will become more acceptable. This in turn will allow greater opportunities for these financial companies to make a difference in a space that was previously untouchable.
Secondly, banks appreciate their role of providing liquidity and access to funds, while maintaining the regulatory requirements. They also continue to maintain the relationship with the government. The differentiation between the technology companies that touch the money and the banks becomes more acceptable.
Watch the full panel discussion on this topic here and discover more words of wisdom from fintech leaders!
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