As banks dive into the second half of 2024, there are several technologies they must consider investing in now to advance their offerings and compete with the FinTechs and neobanks. Traditionally, most banks have been less eager to adopt new technologies, with only a few that driving new technology and innovation. However, today’s banks are facing fierce competition in their target markets, as well as with FinTechs and neobanks that can offer faster, better customer experiences to business and corporate customers. To compete with their peer banks and these nimbler organizations, these four technologies will help banks to improve their competitive offerings and deliver better digital business banking customer experiences.
Embedded Payments
Embedded payments is a technology banks need to consider to round out, and extend their payment’s capabilities. Embedded payments enable simplified transactions and can be integrated within various back office workflows and customer ERP platforms. This embedded approach creates a deeper engagement with their customers and creates a barrier to disintermediation. Banks that can seamlessly incorporate their payment services into widely used non-banking platforms and ERP’s (NetSuite, Sage, Zero, Quicken and QuickBooks) will have a competitive advantage by improving sophistication, convenience, and accessibility.
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Instant Payments
It’s been almost a year since the federal government launched FedNow, an instant payment infrastructure developed by the Federal Reserve that allows eligible depository institutions of different sizes across the U.S. to provide instant payment services. FedNow is one instant payment solution, but there are others including Zelle for business and TCH Real Time Payments that are transforming how banks deliver payments. By adding an instant payment infrastructure, banks can provide their customers with real-time, flexible payments that are secure and scalable, helping them to compete with the likes of PayPal, Venmo and Visa Business applications.
As FinTechs like PayPal add business banking services including debit cards, prepaid cards, credit cards and lines of credit, it is more important than ever for banks to provide instant payment services to better compete. Banks have an advantage in gaining small and large business clientele because they can offer a much broader portfolio of “value added” services, including lending, cash forecasting, wealth and treasury management, etc., not adding instant payments gives businesses a reason to look to FinTechs.
FinTech Applications
Speaking of FinTechs, businesses spend the lion’s share of their workday in popular FinTech applications such as NetSuite, Sage, Zero and Quicken, and these corporates want their banks to integrate with these applications. Many businesses spend a lot of time working in these ERP applications, especially small businesses, to reconcile their accounts receivables and payments, cash, billing and accounting. If banks want to remain competitive with FinTechs, it is strategically necessary for them to embed their brand and services directly into these applications, so customers can access their banking needs from within their native corporate applications. Integrating fintech solutions directly into the digital banking experience is the optimal way to provide market-leading technology and features to customers and members, as well as helping streamline operations. It also provides customers with improved accessibility and convenience – enabling them to access banking services anytime and anywhere through intuitive digital interfaces. Furthermore, embedding banking services into these ERP applications enriches the financial ecosystem by driving innovation, expanding market reach, and leveraging enriched data for more informed decision-making.
Application Programming Interface (API) Banking
API banking enables different software systems to communicate and share data more intuitively and uniformly. Leveraging APIs offers several key benefits. First, it enhances the customer experience by providing personalized services and seamless access to banking functions across various platforms, leading to improved convenience and satisfaction. Additionally, API banking fosters innovation and agility, allowing banks to quickly develop and add new features, collaborate with FinTech companies, and integrate third-party services. This creates a comprehensive financial ecosystem.
Another benefit of API banking is increased efficiency and cost savings through the automation of routine tasks and reduction of operational redundancy. API banking also enhances security through secure data sharing and advanced authentication mechanisms, ensuring compliance with regulatory standards. Integrating data from various sources provides a unified view of customer information, which can be leveraged in a data repository for centralized entitlements, delivering insightful analytics. These capabilities give banks a competitive advantage by differentiating their services and improving customer retention through a better overall experience.
Wider Cloud Adoption
Moving banking operations to the cloud offers substantial benefits such as driving efficiency, innovation, and competitiveness. Per data from the American Bankers Association, at least 90 percent of banks maintain some data, applications or operations in the cloud, and 91 percent expect to increase cloud usage in the coming years. While banks are moving some operations to the cloud, a Dragonfly survey revealed they are less inclined to move to a cloud-based model with 33% of respondents stating they are running less than 25% of operations in the cloud, 42% stating they are running less than 50% in the cloud and only 8% stating they are running more than 75% of operations in the cloud.
Cost efficiency is a major advantage, as cloud computing eliminates the need for expensive on-premises hardware and maintenance, leading to significant savings. The cloud’s scalability also allows banks to adjust their computing resources based on demand, optimizing cost management. Enhanced security is another key benefit, with cloud providers investing heavily in advanced security technologies and compliance features that offer robust protection against cyber threats while helping banks adhere to regulatory requirements. The cloud also fosters improved agility and innovation by enabling faster deployment of applications and services, allowing banks to respond swiftly to market changes and customer needs while lessening their tech debt.
As banks increase their investment in technology, the focus must be on delivering high-quality, scalable services that meet their business customers’ needs. Composable embedded banking solutions allow banks to gradually add services that enhance overall functionality, offering a promising approach to adding these game-changing services that will help banks compete with new players for digital business banking customers.
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