Banks cautiously open to partnering with tech innovators

Banks cautiously open to partnering with tech innovators

Summary: Joining forces with new payment providers, such as Apple and Google, is important for the survival of banks in the future. But some banks are worried about losing control to these tech companies.


As technology companies wade into the financial services business, banks have agreed that it is crucial to form partnerships with these news players, but not without some resistance.

Companies such as Apple and Google are brazenly encroaching on grounds that were traditionally held by banks, with products such as Apple Passbook and Google Wallet. The two applications facilitate payment of purchases through mobile devices.

The tech big boys' move into the payments arena may spur new players to jump on the bandwagon. There are already peer-to-peer payment providers, such as Bitcoin, that are popping up and are fast gaining momentum in the payments space.

Banks, which have traditionally kept to themselves, need to change traditional business models to make themselves more open to partnering with these new players, according to St George Bank CEO George Frazis.

But he said that banks cannot afford to completely open up to these new entrants to the market. There are many issues associated with partnering with external companies, including who actually owns the customer.

"You can have a perceived closed system [business model] with partnerships, and in this environment, you do need partnerships," Frazis said at the FST Media Annual Banking Technology and Innovation conference in Sydney. "Developing partnerships to help innovate is important, but you really have to do the thinking yourself."

He used Apple iTunes as a good example of an effective closed off business model where Apple uses encryption and an ecosystem of devices to ensure that the whole process of purchasing digital music is controlled by the company itself. This has made Apple one of the most profitable players in an industry that is seeing a huge decline in revenue.

"Financial services, to a certain extent, is in a fortunate position in that increased regulation is somewhat closing the system, so it's hard to be totally open," Frazis said. "But we have to continue to innovate, while still being open to the fact new players, like Apple, Google, and so on, are looking at [payments] in a totally different way, are not constraint by our way of thinking, and may come up with good solutions — so [banks] really have to be at the forefront."

In Frazis view, banks should maintain a closed system while keeping these tech partners at an arm's length.

Citibank Head of Operations and Technology Deepak Jain has a slightly different view.

"The danger is that we don't partner because we're obsessed by 'we want to own the customer; it's our customer, not their customer' and we need to be open to different models on that interaction," he said at the conference.

Technology innovators are unlikely to want to be in full control of the entire payment process anyway, according to Jain.

"Of course, those players are interested in terms of what they can do in the financial services space, but they also recognise the value that banks bring from a trust perspective, particularly in a highly-regulated industry," he said. "All those players will look to us to partner and lend them credibility in that space — I don't think they necessarily want to do everything a bank does, end-to-end."

"The first time a terrorist organisation moves money through iTunes, the regulators will be all over Apple, and the company probably doesn't want to get into the space of doing Know Your Customer on everybody that opens an iTunes account."

Partnership is mutually beneficial for banks and technology companies that want to enter the financial services sector, according to NAB Executive General Manager for Direct Banking Sam Plowman.

"These global businesses have a lot more capital to invest in research and development than we do, and spend a lot of time at the customer interface point," he said. "Where possible, we will partner with these guys and venture into new markets with them to ensure we stay relevant, which is important for the industry."

Commonwealth Bank has already partnered with Facebook to facilitate payments on the social media website.

Topics: Banking, Mobility, Australia

Spandas Lui

About Spandas Lui

Spandas forayed into tech journalism in 2009 as a fresh university graduate spurring her passion for all things tech. Based in Australia, Spandas covers enterprise and business IT.

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  • thoughts

    "There are already peer-to-peer payment providers, such as Bitcoin, that are popping up and are fast gaining momentum in the payments space."

    Bitcoin is not fast gaining momentum of any sort.

    "including who actually owns the customer."

    Only God should be "owning customers." I frankly do not want to a part of any business who considers customers to be something that is owned.
    • Wow

      Love my job, since I've been bringing in $5600… I sit at home, music playing while I work in front of my new iMac that I got now that I'm making it online(Click on menu Home)
    • Bitcoin growing, and on the radar of Central Banks

      Bitcoin is still small - and the main discussion forum has 'only' been growing at a rate of a bit over 2000 new users for the past 20 months. There are constantly new merchants taking part, new exchanges and peripheral businesses setting up. In October this year, the European Central Bank released a report which went into detail about Bitcoin and it's potential to affect more traditional currencies. (
      If that doesn't fit your definition of 'fast gaining momentum' well good for you and the bull you're riding.
      Bitcoin is fundamentally different from other players in the payment space in that it can never 'own' customers. There isn't even an organisation behind it. It's a community based peer to peer system.
      • correction

        I should have said - the discussion forum has actually been growing at a rate of over 2000 users *per month* for the past 20 months.
        The actual average rate according to forum stats is about 3170 per month - but this includes a spike of over 14000 signups in June 2011..
      • thoughts

        "and the main discussion forum has 'only' been growing at a rate of a bit over 2000 new users for the past 20 months."

        Kerbal Space Program, a niche PC game that is about 17 months old, has 59000 members on its forums. Even with your corrections in your most recent post, that's larger than Bitcoin's forum growth.

        Forum growth isn't really a good measure of popularity anyways.

        And it's all moot if I can't go to the nearest Wal-Mart and use it, or to online and use it. Without large retail on board, it's merely a financial curiosity. I have a bit of it, but I can't realistically use it for anything.

        "Bitcoin is fundamentally different from other players in the payment space in that it can never 'own' customers."

        I was talking about the businesses and their handling of customers; the comment about the currency a was separate conversation altogether.

        "the European Central Bank released a report"

        A report about virtual currencies. They included Linden Dollars, a currency that can only be spent inside their game. You have to convert it to another currency to use it outside of the game.

        And according to the exec summary, they:
        - Do not pose any real risk to financial security,
        - Tend to be unstable,
        - Tend to have legal issues and tend to be used by those who participate in illegal activities,
        - Could have an impact on banks if they start accepting them,
        - Should be watched carefully by central banks.

        Not really all that positive, if you ask me. I think I'll stick with my USD and Euros. As will the vast majority of people, I imagine.