Banks partner with fintechs amid challenge from Facebook, Apple

People walking in front of modern office buildings, in Canary Wharf, London.Easyturn | E+ | Getty ImagesBig banks know they need to change with the times. And to do that, many are striking partnership deals or buying into nimble start-up competitors as an alternative to building out costly internal technology projects.That was the message from bank executives at the Sibos financial services conference in London this week. For the banks, the logic behind partnerships is simple: it gives them a way to unlock the technical capability of a company like Facebook or Apple without necessarily requiring the technical know-how.As banks are heavily regulated, the prospect of teaming with tech companies also offers them the chance to experiment with new products, without making the costly move of doing so in-house and risking something potentially going wrong.”We certainly partner with a lot of fintechs, and in some ways we do so in order to learn,” Macgregor Duncan, chief development officer at Westpac, told CNBC in an interview. “But we also partner in order to build new capability for the bank.””There’s just a zero-risk policy inside big organizations.”Macgregor Duncanchief development officer at WestpacFor example, the Australian lender last year partnered with Assembly Payments — a competitor to companies like Square, Stripe and Adyen — to launch a payments platform for its business clients. The bank’s venture fund, Reinventure, has also invested in the six-year-old company.”If we were to build that inside the bank, that would take us a long time and it would be really expensive” Macgregor said. “The reason it’s expensive and would take a long time is that there’s just a zero-risk policy inside big organizations.”Tech challengeBanks are having to move fast as tech giants push into financial services. And it’s no secret that the large lenders know they’re in trouble.Earlier this week, Deutsche Bank CEO Christian Sewing name-dropped Google, Amazon, Facebook and Alipay — the payments subsidiary of Chinese billionaire Jack Ma’s Ant Financial — as examples of companies that are “already taking market share” from the banks.Tech companies in China have managed to obtain a huge amount of influence over how consumers their spend their money, with mobile wallets like Alipay and Tencent’s WeChat Pay gaining significant traction in the country.”They can afford to lose a hell of a lot of money to engage a customer.”Meanwhile, Silicon Valley giants are also making inroads, with Apple having recently launched a credit card in partnership with Goldman Sachs and Facebook announcing an ambitious — though heavily controversial — digital currency called libra to enable the rapid transfer of money abroad.”They can afford to lose a hell of a lot of money to engage a customer,” Ed Maslaveckas, CEO of fintech firm Bud, told CNBC in an interview.Maslaveckas’ company taps into a big trend in the industry known as “open banking,” where third party companies can access bank customers’ account data and initiate payments on their behalf, given they’ve got the consent to do so. Goldman Sachs is one of Bud’s investors.Apple a ‘big threat’Bud’s chief added that Apple was a “big threat” to the banks due to its broad reach and massive cash pile, a point that was echoed by Sulabh Agarwal of consultancy firm Accenture.Though fintech firms have managed to disrupt revenues when it comes to payments and foreign exchange, Agarwal told CNBC that the “main challenge” to the banks will come from the likes of Apple and Amazon “because they have deep pockets.” Collaborations and partnerships are a “clear way forward,” he added.Even Swift, the international payments network that runs Sibos, is facing challenges in the form of new technologies like blockchain, which records data across a distributed network of computers. And — like the banks — Swift has looked to tie-ups with fintech firms as a way to pick up the pace when it comes to innovation.One of the decades-old group’s biggest challengers right now is Ripple, the U.S. blockchain company looking to become the go-to for banks when it comes to cross-border payments. Swift earlier this year announced it would partner with Ripple rival R3 to link its technology with the latter’s blockchain system.”We don’t care about Swift,” Marcus Treacher, Ripple’s senior vice president of customer success, told CNBC. “The world we’re designing and building for, they’re not going to cover with the model they have.”

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