The move to open banking is prying open big banks' budgets, as technology companies approach financial institutions threatened by the encroachment of technologically savvy rivals that are reshaping how consumers send and receive money.
These investments are bringing technology companies closer to financial services.
While Facebook, Amazon or Google may not desire to become banks, offering services such as mobile payments gives these companies a new way to enroll consumers and provide a data advantage over traditional banks in future collaborations.
"We're seeing a lot of investments in payments and mobile wallets by a lot of these companies," said Adam Nanjee, senior vice president of digital banking at Zafin, a Toronto-based technology company. "Banks will find that the consumer demands are being guided by the Facebooks and Amazons of the world."
Almost everywhere banks turn, payments innovation is upending traditional enrollment models. Facebook and Apple, for example, are battling each other to build P-to-P money-messaging service that can serve as a gateway to other products. And Europe's PSD2 open banking regulation is leading a global push toward more data sharing with startups, pressuring banks to improve their ability to respond to payment-focused startups — and leading to a gold rush among fintech vendors.
As part of its response to the trends, Zafin has launched a pair of Microsoft Azure-based products that enable faster response and deployment. One product is designed to streamline partnerships with fintechs. The other brings more data into pricing and fee decisions.
"A lot of our clients are seeing tech companies invest in activities that address specific parts of banking, such as P-to-P or merchant lending," Nanjee said.
One of the potential use cases the company envisions is tying digital or e-commerce payments at a small business to broader financial services, which would put the bank in a more favorable position in the "data sharing" or open banking environment.
Zafin did not disclose usages stats for its new cloud-based products by deadline. The company hopes to draw interest as banks look to expand P-to-P transfer apps to other types of payments and financial services, or respond to Amazon's encroachment into retail by enhancing the merchant services that can go along with the payment.
These adjustments will have to come fast, and Nanjee hopes banks will choose application programming interfaces, software as a service and cloud hosting over more expensive IT upgrades.
"It's become an API-driven world, and banks are looking how to scale some of these digital payment innovations rather than going out and competing with their own IT systems," Nanjee said.
Zafin is not alone, as many technology companies pursue APIs and open banking, which is also drawing investment from venture capital firms.
"When it comes to payment transformation, as fintech payment firms continue to bypass traditional value chain components, banks will need to determine if they should partner with, buy or compete with these new competitors," said David Albertazzi, a senior analyst at Aite Group. "Given that most of the fintech activity in the payments space has targeted the most lucrative components of the value chain, significant decisions are necessary."
This becomes more apparent when taken in context of the potential for new payment solutions made possible by open APIs, blockchain, and use of data and analytics, Albertazzi said.
"With the expansion of solutions beyond traditional banking/payment services for added consumer value, there is significant potential for upside (or downside) for banks," Albertazzi said.