In an effort to prevent being disintermediated by nonbanks, BNY Mellon has collaborated with multiple technology firms to boost its payment capabilities.
"From our experience, banks that can partner with financial institutions that are already connected to fintechs stand a greater chance of success," said Isabel Schmidt, co-head of global payments at BNY Mellon. "That is why we are continuing to build connections with existing and new fintech partners, such that we can seamlessly pass the benefits of these innovative capabilities on to our clients."
"Traditional payment rails haven't kept up with the rest of the world," Schmidt said.
Examples of BNY Mellon's payment collaborations include an integration unveiled in late November with Conduent to support the launch of a digital integrated payments hub, allowing businesses and public-sector users to adopt faster payment processing. The hub supports Zelle, real-time payments, Request for Pay and fraud management.
BNY Mellon earlier in November entered a similar partnership with
BNY Mellon's partnership strategy also aims to improve how the bank connects with corporations and other financial institutions in areas such as faster payment processing and other digital transactions. Like most companies that provide payment automation, BNY Mellon is looking to cover as much of the payment process as possible, as businesses look to streamline their third-party relationships out of economic concerns.
The Conduent collaboration, for example, uses an application programming interface to connect users with a system that sends payment instructions or accesses data for quick reconciliation. The hub also connects to a Conduent rail that supports ACH transfers, stored value debit cards, PayPal and other services.
"When it comes to improving onboarding, it's all about APIs," Schmidt said. "We're continuing work on our API user experience."
BNY Mellon started these partnerships against the backdrop of internal research that found banks risk falling behind the curve without help from technology firms. Additionally, competitors such as
"Our customers benefit from greater efficiency and reduced cost through an integrated system. Consumers benefit from the convenience and speed of a consolidated payment and disbursement process. Both benefit from greater transparency to the process," said Kathy Mertes, vice president of digital payments at Conduent, in an email. "Payments play a role in every industry; the use cases are seemingly endless."
BNY Mellon contends there's a two-way benefit to the partnerships, as banks gain the ability to support new payment innovation faster while the technology firms gain access to an established partner, as well as the potential to partner with other financial institutions or fintechs.
"No payment technology has really solved the entire payment experience," Schmidt said. "The banks provide these companies with the comfort of working with an established financial services provider."
There is also the opportunity for fintechs to gain greater access to resources by working with a bank. "Using legacy technology comes with challenges," Schmidt said. "Addressing this takes time and a significant amount of funding — and technology providers don't necessarily have that."
BNY Mellon recently released the results of a survey of 790 employees at midsize and large organizations in seven North American and European countries. It found only 34% of the respondents felt their bank understood their payment technology needs, but preferred to partner with a bank than a third-party fintech vendor — saying banks were more secure, stable and transparent.
"This should be a red flag for banks," said Erika Baumann, director of Aite-Novarica's Commercial Banking & Payments practice. Aite-Novarica conducted the research along with BNY Mellon. "Businesses would rather partner with a bank for payments tech but are turning to vendors instead."
The survey also found the largest gap between payments technology benefits between banks and fintechs is processing speed (60% said fintechs are better) and resolving customer queries (46% felt fintechs are better).
Also, 60% of businesses are working with a fintech vendor for core cash management or payments, and 24% plan to do so in the future.
Finally, the survey found 87% of businesses have made significant investments in payments, yet 88% still plan to make investments to improve payments, suggesting opportunities for both banks and fintechs.
"It's not too late for banks. It's not a case of 'banks are doomed,' " Baumann said. "But it is a call to action."
Improvements in technology give a larger range of banks the ability to adopt and offer payment automation through partnerships with fintechs.
"If there is an advantage for smaller banks, it is that partnerships are more accessible than it has ever been," Baumann said. White-label arrangements with fintechs that have API libraries covering different functions can make it easier for community banks and credit unions to adopt necessary payment innovation at a level similar to large banks, Baumann added. "Tech-heavy solutions that would have been unattainable for small banks are now within the realm of possibility."
