The following is a transcript of the PaymentsJournal podcast episode
Ryan McEndarfer Editor-in-chief at PaymentsJournal
Welcome to the PaymentsJournal podcast. I’m your host, Ryan Mac. On today’s episode we’re going to be talking about outsourcing, and to help me with that conversation I have Russell Bennett, the Chief Technology Officer from Fraedom. Russell, welcome to the podcast.
Russell Bennett, CTO of Fraedom
Thanks Ryan. Glad to be here.
Ryan McEndarfer Editor-in-chief at PaymentsJournal
Excellent. Now, when we’re talking about outsourcing, are there any trends that you’re seeing? And is this becoming something that’s becoming a bit more popular? And if so, in what areas are you seeing it become more popular?
Russell Bennett, CTO of Fraedom
It’s a good question. I like to think of partnerships and partnering a lot more than outsourcing. I think outsourcing is a term that potentially has some connotations around taking an area of your business and offshoring it to try to get cheaper labor or a different model of delivery, but delivery that’s effectively still in-house. What we’re seeing a lot more of is probably a recognition of partnering in the financial or technology space. But I don’t know whether I’d say that’s entirely new. It’s more about a realization that particularly in financial and banking circles that it’s really okay to be looking at partnering with and working with new players and fintechs to try to achieve something that is a lot easier to do when you’re partnering than when you’re trying to do everything by yourself.
Ryan McEndarfer Editor-in-chief at PaymentsJournal
Great. Thank you for that. You made a really great point there. Probably the word “outsourcing” needs a better PR manager and there are kind of some negative connotations, as you pointed out, to that word. And I think partnering probably is a better word. Moving on: What are some of the biggest benefits that outsourcing offers, especially to commercial banks?
Russell Bennett, CTO of Fraedom
Probably the biggest thing is the ability to allow different groups, different organizations or banks to focus on what it is that they’re good at and work with others that can actually provide additional value to their customers by allowing them to focus on the area where they have expertise. If you look at what’s happening a lot in the fintech space, you’re seeing a lot of traditional banks that have very stable platforms, very stable brands, a very stable customer base but effectively are bogged down by legacy systems, challenges with resourcing, challenges with budget, challenges with trying to kind of reinvent a lot of the systems that they have in place. What you’re seeing now is them working with partners in a space where they have expertise that can really bring something to help speed to market, help the customer experience, and ultimately help to drive that bank kicking and screaming into the next generation of expectations that I think we all have as consumers and users of banks both in the commercial and in the consumer space–what people just expect nowadays is modern technology, modern services, modern capabilities, and in a lot of cases the traditional banks haven’t been able to offer that by trying to do it all by themselves.
Ryan McEndarfer Editor-in-chief at PaymentsJournal
If I’m a bank, from your standpoint what could you tell me about making the right choice when it comes to selecting an outsourcing partner?
Russell Bennett, CTO of Fraedom
The thing that you have to be very conscious of as a bank is that one of the things that the banks really bring to the table is brand name and recognition. The danger or the risk in partnering with a fintech organization that perhaps doesn’t have the credibility or the history or even the size to be able to work with a bank. They run a risk of reputational damage if things go south pretty quickly. A lot of the time, particularly in this day and age, anybody can put up a website, anybody can put a really good message out there to suggest that they are this organization that can do a lot of things. In some cases, those things are very “smoke and mirrors,” and banks need to do their due diligence on those providers to make sure they can actually do what they say they can do and can also scale. Recently we were talking to one of our banking partners who was working with or looking at working with a third party. On the surface, it sounded pretty amazing what it was they could do, but when you dig a little bit deeper, it was an organization with really four or five people that were running the business and then they’d actually themselves outsourced all of their development offshore. I think from a banking point of view that that poses a pretty big risk, to align your brand and any partnering with one of these early startup fintechs that doesn’t have the backing or the credibility to be able to provide those services. For a bank, one of the things they have to consider is whether when they’re looking at partnering with that type of fintech, are they prepared to invest in that fintech? Are they prepared to help ensure the longevity of that organization and really partner with them on a financial perspective as well as in terms of investing in that company? Or are they looking for an established player, somebody that has credibility, somebody that’s been working with banking partners for a number of years, somebody who’s global if they’re looking to expand and grow their business across borders. They really need to be thinking about ensuring that the partner they work with has that longevity, credibility, and ability to actually scale with the bank’s demands.
Ryan McEndarfer Editor-in-chief at PaymentsJournal
What can you tell me about the differences in outsourcing trends when comparing the U.S. and U.K. market?
Russell Bennett, CTO of Fraedom
Historically what we’ve seen is in the U.S., the research would indicate that the U.S. banks typically are doing a lot more outsourcing or partnering with other providers today. It’s always one of those things (I love statistics because you can kind of manipulate them to say anything you want), but if you’re looking at the comparisons, we’re saying maybe 70 percent of the banks in the U.K. and Europe are looking to outsource or are outsourcing today. It’s probably 78 percent in the U.S. So the difference isn’t that huge. Historically it probably comes down to the age of some of these providers and some of these banks. There’s a lot of outsourcing that happened from day one probably in the U.S. market. What we see is that there are established platforms for processing credit cards and providing a lot of those services that a lot of those banks in the U.S. are using today, whereas in the U.K., it is probably historically a lot more banks that have over the years built and invested in their own in-house solutions, their own systems, and that’s probably what’s holding the back those legacy systems from actually pushing down the outsourcing or the partnering path as quickly as perhaps they would like. One of the things that I think is an interesting dynamic or something that’s going to change that a lot is what we’re seeing and I’m sure all of us have been seeing it recently with the number of emails in our inbox around updated privacy and policies relating to GDPR and some of the new regulatory changes coming out of Europe. But I think things like that and also the open banking initiative that is driving out of that part of the world is actually going to accelerate the use of fintechs and partnering in that region. I think we are going to see that balance change a little bit, and I think we’re going to see a lot more of the banks in Europe are actually going to be partnering and working with different fintechs either because they’re now driving and seeing the value of those changes or through things like open banking where effectively they’re being forced to be opening up their systems and working with those providers. So historically the U.S. has probably been a bit of ahead, but I do see that balance swinging a little bit in the near future.
Ryan McEndarfer Editor-in-chief at PaymentsJournal
As financial technology evolves, do you think banks will become reliant on partnering with fintech firms to avoid being left behind?
Russell Bennett, CTO of Fraedom
Absolutely. If you look across what’s happening in the world we live in today, so many changes have been happening in technology in the last 5,10 years, even probably 10, 15 years ago the thought of actually having a color mobile phone was crazy. Now you look at what you can do on those mobile devices, you look at the technology that’s coming in to different providers, what actually, what you can do now online compared to what you could do in the future, that pace of change and that the amount of innovation and technical advancement that’s going on right now, if banks don’t partner with that and don’t embrace that and look to work with providers that can offer that little edge and the innovation and being able to provide those services, I think they absolutely will be left behind. I don’t think a lot of the banks have that ability in-house to be able to drive and deliver that level of innovation. In my view, it’s a bit of a no-brainer that they are going to have to embrace a lot of those changes, they are going to have to partner with fintech firms and look at providing those services in a different way because if they don’t, then I think they absolutely will be left behind by the other banks that are looking to do that.
Ryan McEndarfer Editor-in-chief at PaymentsJournal
Now before we wrap things up, taking a look at 2018 and beyond, what would you say from your point of view you’re most excited about seeing within this space?
Russell Bennett, CTO of Fraedom
I think it’s the continual pace of change. I think itt’s exciting every day to see the new partnerships that are emerging, the new fintechs that are lining up and working with banking partners. But I think just in terms of the ease of being able to get access to payments technology, the systems that are out there that provide that holistic view, of being able to get that visibility of spend. Probably what’s the most exciting in the space that we play in at Fraedom is really around the way that we’re seeing that change in the commercial side of the banking space as opposed to the consumer. The consumer side, typically retail banking, has led the way in terms of a lot of those technical enhancements and advancements. I think what we’re going to start seeing now is a lot more of that drive on the commercial side of the business to be catching up to the consumer and retail counterpart. It’s going to be exciting to see in what is, I guess, the area where most of us spend most of our time, the business world, how business systems and business banking are going to be leaping forward in terms of capabilities as a lot of those banks realize that partnering with fintechs is absolutely the way forward for them.
Ryan McEndarfer Editor-in-chief at PaymentsJournal
Well, thank you Russell for taking the time today to speak to us about outsourcing.
Russell Bennett, CTO of Fraedom
Thanks.
