I recently moderated a roundtable session at the AFP Executive Forum in New York that focused on fintech for corporate treasurers. With all the hype around fintech over the past few years, I think it is important to stay focused and realize that fintech development should be aimed at making real issues better for the end-user. Technology can often do a lot more than what can be implemented on a practical basis, and this more nuanced view was what I wanted to bring out in the roundtable.
As I introduced the topic and teed up the discussion, I reflected on how difficult change can be for corporate treasury professionals, particularly when it comes to payments systems. For example, SEPA really didn’t get any adoption until authorities mandated it. Changing the standard of the file formats to ISO 20022, and converting bank account numbers to IBANs was just too daunting a task for corporates, despite the potential savings and efficiencies that could be achieved in the long run.
We also touched on the increase in check use in the United States for B2B transactions in the past three years, which was revealed by the 2016 AFP Electronic Payments Survey. This has occurred despite the abundance of new technology advancements in payments.
Moving on to fintech, I first asked the panel how they define it. This question usually generates a wide range of answers. Some see fintech as simply technological advancements in the financial sector, such as software upgrades and more efficient platforms. Others view fintech as being all about disruption, such as startups that employ new technologies like blockchain/distributed ledger, artificial intelligence and APIs, which aim to make legacy systems and players irrelevant.
Again, I think it is important to realize that a realistic approach to fintech may be the best course of action for treasurers—a course that should land at about the middle of the definition range. As financial technology development is progressing, we see that legacy players in the financial sector are not sitting still and letting themselves become irrelevant. Instead, we see a lot of collaboration between the old and new players. Banks are partnering with startup companies on new technology solutions, with the goal of forming a win-win development. The reason for this is that the players benefit from each other’s strengths; a startup can lean on a bank’s solid foundation in the marketplace, and a bank can reap the benefit of the innovative nature of a startup.
Finally, having spoken with many corporate treasurers over the years as well as once being one myself, I know that there continues to be a lot of frustration with banking partners who are set in their ways. Fintech may provide an opportunity to change that. As one participant at the roundtable mentioned, “Banks are always going to have a role to play in money movement.” Fintech is, however, forcing banks to think differently about how they do things.
So in conclusion, here are three key points to keep in mind about fintech:
- Corporate treasurers are largely resistant to change. The only way they are going to get on board with fintech is that if they see that it improves real issues for end-users.
- Legacy players in the financial system are collaborating with new players because they can benefit from each other’s strengths.
- Fintech is forcing banks to rethink their approach to a lot of things.
For more of my insights, subscribe to the monthly Inside Treasury e-newsletter.
Magnus Carlsson is manager of treasury and payments for AFP.