Head of Treasury Management at Capital One
Treasury Management Market Manager at Capital One
This article first appeared in Fintech Future in August 2019.
For years, fintechs have been attempting to disrupt traditional commercial banking with new, innovative technologies.
While it is undoubtedly true that fintechs are responsible for jump-starting many of the changes we’ve seen in the banking, the idea that they would displace established commercial banks—as Amazon did brick-and-mortar retailers—looks increasingly unlikely to occur.
Fintechs may have started a revolution in financial services, but the commercial banks have taken a starring role.
Catalyst for change in treasury management
Treasury management evolution was spurred by fintechs. Relying on such technologies as APIs, artificial intelligence, and cloud computing, they have introduced products that streamline and automate the flow of electronic payments and that help companies better manage their payables and receivables.
Fintechs have also shown themselves to be extremely nimble, employing design methodologies that enable them to move rapidly from idea to prototype to product. The potential benefits of these innovations, combined with fintech’s agility, were the principal reasons that the global fintech sector raised a record $39.57 billion in 2018, according to CB Insights.1
Nonetheless, fintechs have a number of drawbacks and differences worth noting. They are lightly regulated, especially in areas of data aggregation and privacy, security, and capital.
Because fintechs are by definition newcomers, they also lack the deep experience of their commercial bank counterparts. The result: they tend to offer either an overly broad, one-size-fits-all payments and receivables solution that ignores the individual requirements of different sectors or an overly narrow, industry-specific product that fails to reflect the way payments and receivables fit into that industry’s entire cash cycle.
Fintechs’ ability to address this weakness and provide a more comprehensive solution is limited by their size. They have just a fraction of the resources of the commercial banks, which can develop and deliver end-to-end approaches.
Commercial banks focus on technology and talent
These drawbacks have created an opening for the commercial banks—but only those that are willing to recast themselves as more technologically-focused and nimble organizations. In effect, by becoming more like fintechs while capitalizing on their superior domain knowledge, relationships, and resources, these commercial banks are seizing the opportunity to bring the next generation of treasury management services to their clients.
Rather than using our IT staff to stitch together third-party products, we have recruited our own software engineers, data engineers, and machine learning and cloud infrastructure experts. At our Capital One® labs once, veterans of Google, Amazon, and other top tech companies are developing the treasury management services of the not-so-distant future.
Product design for commercial banking technology
Traditionally, banks have followed a largely self-contained process when creating new payment products. They identified a goal, wrote software, and handed the result to their clients. At best, these solutions were functional, but few were effcient or easy to learn or use.
By contrast, we embraced human-centered design and agile delivery, instead of being excluded from the process, as we involve end users and designers at every stage of the product development cycle. Human-centered design begins with the product team learning about customers’ processes and aspirations. The team then defines a hypothesis, brainstorms solutions, builds prototypes, and tests its ideas with customers.
A source for integrated innovation
Account opening is an inherently complex process, and the regulations governing it are especially rigorous. We asked FirstService Residential to partner with us because they represent an especially hard-use case: they open scores of new accounts for their clients every day.
The result is a product that would be hard for fintechs to replicate—one that meets the specific requirements of our commercial real estate clients. Not surprisingly, FirstService was enthusiastic about the experience. As Andrew Ahrensdorf, First Service’s vice president for cash management and lending, said, “having an account-opening process that readily accommodates the way we work—and in fact makes our work easier—is a great plus for us.”2
In the meantime, the customers who have longstanding relationships with tech-focused commercial banks like Capital One have the assurance of knowing that, whatever the future of technology may bring, they will have a partner who understands their business and who has the expertise to help guide their transition to these new platforms.