“Banks are now facing significant challenges, and they need agility, scalability, and elasticity in order to adapt quickly.” Thus stated Dheeraj Joshi, a seasoned fintech professional with more than 15 years of experience in banking and technology and current Regional Head for Payments Solution Consulting of Finastra.
Finastra is a global provider of financial software applications that offers the broadest portfolio of solutions for financial institutions of all shapes and sizes.
“There’s an ever-increasing competition, constantly shifting regulatory and compliance obligations,” he adds. “With digital wallets and fintech companies offering cheap, fast payments within easy-to-use apps, banks now need to reduce their operational complexities and costs per transaction while matching their digital competitors on customer experience.”
IMAGE CREDIT: Ildiko
In its white paper entitled, “Digital Banking Overview in the Philippines,” Finastra provided key insights on how banks can overcome challenges by tapping into growth opportunities in digital. “It is clearly true that customers’ expectations towards digital banking evolve. In terms of digital, customers like to keep things simple and they expect a similar, personalized, omnichannel experience for handling their finances,” the paper said. “Banks, therefore, have to deliver an engaging solution similar to that from Google, Facebook, or Apple.”
This means that the innovation and progression currently available can translate to vast opportunities for innovators, but it also presents risks for the incumbents, particularly the banks, who are seeing their high-margin business being eroded at pace.
Digital payments disrupting financial services
According to Finastra, digital payment adoption is disrupting financial services globally. In the Philippines, one of the key drivers of digital payment adoption has been a significant shift in consumer behaviour, with most users now favoring digital wallets like GCash and PayMaya for their superior user experience.
These digital payment methods have enabled more consumers to have access to financial services, which is a major advantage in a country with such a high population of people who do not have access to even a bank account. Today, consumers have become used to the benefits of digital payments and a number of digital players are now innovating to compete for market share, thus, putting more pressure on banks.
“We are in the most interesting era in the payments business. With changes being driven by shifting consumer demands, competition and business demand, as well as government initiatives, it is a real perfect storm for the industry. If banks want to protect their revenue and stay relevant, they need to commit to modernization and invest in payments technology solutions that meet their growing and changing needs,” said Tal Weiser, Managing Director for Sales, Payments (APAC) of Finastra in a press statement.
“Fortunately, banks do not need to do this on their own. Payments solution providers like Finastra can provide the solutions they need to become agile, efficient, modern payments players. In the end, it does not need to be ‘fintechs vs. banks’ but fintechs working together with banks to push the industry forward,” he added.
Digital solutions that banks can leverage on
Among the solutions that banks can leverage now is API (application programming interface) or the process of exposing banking functions as a web service so that they can be accessed by third-party companies. This, in turn, enables the seamless sharing of data. With API, banks can now use specially-designed software that they can plug into their own systems, rather than build them themselves.
“Instead of taking years to develop new services, banks can choose, implement and launch new services in months or even weeks,” Finastra said in its white paper.
Finastra noted that Banking as a Service (BaaS) and embedded finance are also gaining traction in the Philippines. BaaS allows digital banks and other third parties, such as digital wallets, to connect with the bank’s systems directly to build new banking offerings on top of the provider’s regulated infrastructure.
Embedded finance enables traditional financial services, such as lending or payment processing, to be embedded into non-financial apps or websites, such as e-commerce.
“This can be a major new revenue stream for banks as it enables them to go directly to customers at their point of need, instead of customers having to choose and connect with the bank,” Finastra said. “This is demonstrated by the success of Buy Now, Pay Later (BNPL), which is expected to have grown by 80% in 2022 alone in the Philippines.”
Finastra is one of the largest fintechs in the world today, with its software used by 90 of the world’s top 100 banks. Finastra services over 8,500 customers across 130 countries, offering an unmatched depth and breadth of fintech solutions across Payments, Digital and Retail Banking, Lending, and Treasury and Capital Markets.
Asia is an extremely important growth market for Finastra’s global business, with 550+ clients and 4,300 employees in the region. Finastra has been servicing banks in the Philippines for three decades, including large incumbent banks and international banks with a presence here, as well as digitally native startups like Tonik – which runs on Finastra’s core banking platform.
In the Philippines, Finastra’s payments business is investing heavily in the country, recruiting more people to manage clients and even helping more banks and financial institutions to accelerate their digital transformation.