The Elephant in the Room at the 2022 Innovation in Cash Management & Payments Forum


The Elephant in the Room at the 2022 Innovation in Cash Management & Payments ForumThe 2022 Innovation in Cash Management & Payments Forum (ICMP) was a resounding success. Hosted in New York City by Aite-Novarica Group’s Commercial Banking & Payments practice, the well-attended forum provided interactive, moderated panels as well as ample opportunities for networking. Above all, guests enjoyed thought leadership on a range of key issues relevant to transformations underway in commercial banking.

Cutting across the many topics addressed was one major elephant in the room—the multifaceted relationship between financial institutions (FIs) and fintech vendors that has emerged as a result of APIs and open banking.

The Rise of Fintech Competition

First, a little background. The rise of fintech vendors is familiar to anyone covering the commercial banking sector. Our team frequently discusses the current fintech vendor landscape with clients and publishes a quarterly report assessing companies making an impact in the space. Four words seem to crop up time and time again when covering emerging vendors: competition, disintermediation, innovation, and partnership.

These terms reflect a very real situation in which fintech vendors have altered the commercial banking sector, offering FIs market competition. Past Aite-Novarica Group research shows that over 30% of businesses utilize a fintech vendor for at least one cash management or payment service, and nearly 30% rely on a vendor for two services.

Reasons for this range, but nearly 45% of businesses say it is because fintech vendors provide better or automated payment reconciliation, 42% because vendors provide more payment options, and 36% because it’s easier to submit a payment file to a fintech-vendor-provided service. Much of this reliance on vendors has stoked considerable anxiety for FIs that critical revenue-producing services and products are at risk of disintermediation through fintech vendors.

In many cases, fintech vendors are bringing market-responsive innovations to market—and they are doing so quickly. By focusing on one or a limited number of highly specialized solutions, fintech vendors are able to pinpoint customer experience, can design products around pain points in a given area, and can avoid issues that develop from working with legacy systems. Meanwhile, FIs have structural constraints that make this type of innovation extremely difficult. However, stringing together vendor-based solutions is, in many cases, an imperfect solution for businesses’ banking needs.

An Imperfect Solution

Fintech vendors are not without considerable market challenges of their own, though. These challenges have hindered growth for many companies and could lead toward a slowdown of fintech innovation in 2023. Vendors in this space have relied on a friendly investment environment to scale and provide go-to-market solutions quickly. Economic circumstances have led to less investment in newer startups and new budget considerations for existing companies, which will most likely result in fewer fintech vendors outcompeting FIs on the innovation front.

Slowing market growth isn’t the only challenge on the horizon. Earning trust with business clients in areas like cybersecurity and fraud protection is an easier proposition for FIs than for vendors. Businesses tend to want stability; it’s not unheard of for a business to show reluctance to utilize fintech vendor products and services—the vendor could go out of business or get acquired, both of which could lead to disruptions for the client.

Similarly, businesses fear dealing with a newly implemented system, which could require calls to vendors’ customer support for however many specific products a business has onboarded (rather than a single call to an FI). Fintech vendors can also have difficulty selling directly to businesses, especially when those businesses have a long-standing relationship with an FI.

Above all other problems fintech vendors face, the primary pain point is integration. Businesses are often reluctant to adopt numerous task-specific platforms without any centralized point that connects all of them. Utilizing different vendors for treasury, cash management, payment, and other solutions can create integration and interoperability issues; strain IT departments; and increase exposure to fraud, cybersecurity threats, and the other issues described above.   

While fintech vendors might excel in time to market and innovation, creating a more competitive marketplace, FIs excel in all the areas in which vendors tend to fall short. FIs have proven reliability, often have long-standing relationships with clients, and garner trust with their clients not only because FIs are here to stay, but more importantly, because they have a proven track record and higher stakes when it comes to fraud protection and cybersecurity threats.

FIs have connections throughout an organization’s financial chain of command for sales purposes, and they can provide an all-in-one shop for treasury, cash management, and payments products—with only one customer service number to call when a problem develops. FIs can provide ease of integration and the assurances of a trusted partner that many fintech vendors can only dream of offering.

The Elephant in the Room

Which brings us back to ICMP 2022. Most attendees at ICMP 2022 were from FIs, but no small minority were from fintech vendors. One of the highlights of the event was the vendor showcase to introduce new banking solutions. Across the various panel sessions—which included topics on payments, middle market customers, evolving financial technologies, APIs, and onboarding—the issue of FIs versus fintech vendors came up repeatedly. Given the recent nature of fintech vendor competition, this wasn’t a total surprise. What was unexpected, however, is how little competition and disintermediation were discussed.

Instead of competition, many of the panel’s speakers and attendee comments focused on best practices and strategies for FIs to make smart partnerships with fintech vendors. Rather than concerns over disintermediation and market share, speakers from FIs shared thoughts on due diligence with potential fintech partners and speakers from vendors talked about partnerships that enable vendor-based solutions to configure into an FI’s broader go-to-market strategy.

Increasingly, FIs recognize their own limitations in innovation, while fintech vendors understand their own limitations in scalability and market impact. As a result, both sides seem poised to increasingly seek value-additive partnerships. In a room filled with employees from both FIs and fintech vendors, the big question of the day seemed to be how both sides can get to know one another.

These types of conversations are a reminder of why in-person forums are often irreplaceable. But simply recognizing that FIs and vendors should be collaborating is where the truly hard work begins.

For vendors, this means learning how to make inroads with FIs; how to modify existing products to be offered through an FI; and how to market directly to specific banks based on asset size, client base, and overall market strategy. For FIs, this means adequate due diligence, understanding the details of implementation and interoperability for specific solutions, and making critical choices between vendor solutions.

Final Thoughts

With so many hot-button topics discussed at ICMP 2022, it’s perhaps a stretch to say that FI-fintech vendor relationships was the one with most resonance for the evolving commercial banking sector. It was certainly a topic raised throughout the day, perhaps because partnership is widely understood as a critical way forward.

As investors pull back on fintech vendors, which could result in fewer new startups and less innovation, and as FIs prepare for turbulent economic times through their own cutting of costs, now more than ever partnerships seem like a mutually beneficial way for FIs and fintech vendors to bring new services and products to clients.

To learn more about FI-fintech partnerships, or to further discuss details from ICMP 2022, please reach out to me at [email protected].