The best API will win the day for regional banks

By David Beach | 29 June 2018

With more than 75% of larger global banks retracting their correspondent banking relationship in the international markets, regional banks are frequently turning to the new utility model as well as emerging fintech to keep delivering the international services to their clients that they’ve come to expect.

“As the retreat continues, regional banks are running out of partners to support their international operations and financial services to SMEs,” says Mariia Khriachtcheva, director of digital payments at ATB Financial Canada, “As a result, forex services and cash management are badly affected.”

It is very much a case of a rock and hard place for smaller banks.

If those banks are facing drip down pressures from the global banking network, SMEs are increasingly looking for greater international services from their local regional bank as more and more digital businesses continue the growing trend of expansion to emerging markets.

“Global expansion requires multicurrency conversion and settlement in currencies defined by card schemes, including interest rates” says Khriachtcheva, explaining the new strain on banks “this brings added cost to the bank’s operations as this kind of offering requires us to manage partnership agreements with local banks in the various regions. Navigating regulatory compliance requirements in those regions adds further cost and complexity for the bank.”

As with the wider demand for SWIFT gpi’s tracking feature, the need for fee transparency is forcing through collaborations between regional banks and international FinTechs to provide as much insight as possible into fees.

Necessity is the mother of innovation and many emerging technologies and fintechs have flourished, disrupting the status quo in a the virtually unlimited potential of the cross border payment space.

However, Khriachtcheva does not believe the rise of innovative fintechs necessarily spells bank disintermediation.

“Fintechs are often categorised as disruptors, but if they truly are, they should be disrupting outdated and inefficient processes” says Khriachtcheva, adding how that can only come through mutual collaboration.

“Collaboration with FinTechs is basically the way to go,” says Khriachtcheva, explaining how banks will always be the intermediary that manages relationships and, more importantly, trust.

Khriachtcheva is much of the opinion that banks should stick to what they do best, and leverage best of breed fintechs who “have the luxury of being wrong without deteriorating the relationship with their clients” – that is to say, without an intermediary, fintechs would not be able to specialise and own their services.

But Khriachtcheva says banks should look to their own infrastructure to attract the fintechs and leverage their solutions cost-effectively.

“We’re rebuilding our current front end to be an API based open architecture to make ourselves as accessible as possible to fintechs,” says Khriachtcheva “we’re also in the process of structuring our entire technology stack to become cloud based and that will actually make us the first fully cloud based bank in Northern America.”

This also poses various challenges, chiefly scalability, compliance and standardisation, the latter providing a cost-effective approach to collaboration for the future.

But for those challenges, ATB Financial have also spotted opportunities.

“Something we’ve never had before, we’re beginning to see indirect clearers who would like to plug into our gateway and the overall Canadian clearing system.” says Khriachtcheva.

Khriachtcheva believes the long-term success lies in the banks’ hands: “Financial utilities hide the complexities of bank’s legacy infrastructure and offers a much more agile and advanced technology infrastructure for fintechs to plug into. This infrastructure also comes packed with compliance frameworks which are extremely beneficial for fintechs to launch their innovative business model in new regions.”


For further reading on the emerging utility model, please see the whitepaper ‘Reimagining global banking services in the connected digital marketplace'

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