Tuum, alongside our partners Salv, recently hosted a networking event in London which featured a panel discussion surrounding the topic of how to ‘Unlock the potential of plug & play in banking”. During the panel, we explored some of the current market trends and how they affect the uptake of plug and play banking, as well as how regulation and public perception are shaping future growth.
Read on below for a synopsis of the main talking points.
Setting the scene for plug & play banking
The discussion begins with moderator Christina Frankopan of Lazard inviting the guests to give an overview of the current environment for plug and play banking. Naturally, this point opens with mention of the dramatically changed environment the finance, and specifically fintech, space currently operates in. Fintech companies now find themselves balancing fundraising and product development with the enablement of plug and play functionality, or as Christina describes it “move fast and break nothing”.
Operating in such a challenging environment means reassessing company strategies. As Taavi Tamkivi, Founder & CEO of Salv, notes; now is the time for fintechs to focus on their core mission and the value they can bring. Drawing on his own experience at Wise (formerly Transferwise), Taavi notes how he had to build AML solutions in-house due to a lack of external options, which was a tremendous drain on resources. As best of breed fintechs emerge, the ability to plug into these providers becomes a valuable asset to companies trying to streamline their operations.
This point is further elaborated on by Rivo Uibo, Co-founder and CBO of Tuum, who notes the radically changed market from 5 to 6 years ago when legacy systems dominated. With plug and play banking increasingly becoming the norm, companies can now shop around for the best of breed solutions for even individual use cases.
Regulation and technology driving opportunity
The move towards open banking and an API-first economy has been spurred on both by advancements in technology and forward-thinking regulation, such as the PSD2 initiative in the EU. These changes in the market have forced financial institutions to innovate and reinvent their processes, which in turn has led to the rise of third party vendors who support these institutions by shouldering the responsibilities of things like regulatory compliance.
Impact of plug & play on sales cycles
Plug and play in banking has had a noticeable impact on the notoriously lengthy SaaS sales cycles, as Ion Fratiloiu, CCO of Channel, notes; sometimes months are knocked off of the decision process.
Fast decision-making has become a key differentiator in modern banking, and financial institutions are keen to select providers that can enable them to react to market shifts quickly and effectively.
Challenges to plug & play adoption
As Rivo notes, technology only represents one part of the value chain, and complexities lie across this entire spectrum. Due diligence, background checks, etc. must be performed across the entire process, which can present significant stumbling blocks to the adoption of plug and play services. As financial services become unbundled, they must then be rebundled.
Additionally, there are still challenges around convincing financial institutions to adopt new technologies. Use cases vary wildly between businesses, and it is not uncommon for them to be particularly niche. Third party providers must be able to demonstrate that they can fully support the business objectives, otherwise they will not build adequate trust in their solution. The key is to start small, demonstrate the capabilities of the product along singular lines of business, and build from there
Finally, the adoption of plug and play in banking requires a long-term strategic approach. Banks tend to operate on short-term wins, and these perceptions need to be rewritten in order to succeed in an API-first economy.
Read on: How can APIs contribute to your business success?
What is the market appetite for external solutions? Are these solutions receiving policy support?
There is a greater expediency in the search for best of breed solutions which is being supported by a greater understanding on the part of regulators as well as shifts in public opinion. Taavi brings in the example of authorised push payment (APP) fraud, which skyrocketed during the covid pandemic. As reports of this type of fraud increased, so too did public pressure on governments, which in turn devised new laws to push fintechs and banks to solve these new problems.
Learn more about how a plug and play approach can benefit your business. Get in touch with us today.