Digital transformation is not just impacting financial institutions. It is reshaping their traditional technology vendors too.
Finastra, one of the largest tech vendors to banks, brokers and other finance players, is changing its business model. Although it will continue to develop proprietary products to sell to banks, it does not see a great future in relying on that. Instead, it plans to turn itself in a marketplace for fintech companies.
Martin Häring, global chief marketing officer at Finastra, says the company wants to attract hundreds of fintechs in its traditional areas of competence, including retail banking, treasury, and capital markets.
“We will let fintechs program code on top of our platform, and gain access to our 9,000 banking clients,” Häring said. “We want to own the platform, not the making of the products…If classical vendors are not becoming platforms, they will be left behind.” He says the goal is to have no more than 5% of the APIs come from Finastra’s own software services.
The everything store?
Finastra will seek to provide three types of services for fintechs: help with building apps, sandboxes in which they can test products using bank data, and an app store that is deployed via Microsoft’s cloud service, Azure.
Finastra’s revenue model will change to one where it gets a percentage of whatever fees fintechs earn from banks via the platform.
Other tech vendors have done similar things but usually at a smaller scale, for niche services. Finastra is broader, competing at the scale of Fiserv, FIS Global and Tenemos, as well as against broader tech vendors such as Oracle or SAP.
These companies have grown through M&A (Finastra was assembled from Vista Equity, Misys and D+H) but have felt the pinch from smaller, nimbler, and newer fintech companies. The old guard of vendors has had to catch up with Silicon Valley-style agile DevOps as much as their bank clients have.
Network effect
So Finastra is betting that by leveraging its large client base, it can attract lots of fintechs, and then prove the value of a one-stop-shop to banks.
“Banks can use our platform as a playground for prototyping,” Häring told DigFin, noting that banks’ internal I.T. teams are usually unable to do this in-house, because they are too focused on maintaining heritage systems and lack the resources, or risk appetite, for such work.
He says once the platform has enough fintechs on it, Finastra will begin to market it to smaller banks that need an all-in-one approach, as well as to challenger banks that need to add certain functions to complete their offering. But he says the platform will appeal to the biggest tier-1 players as well.
There are risks to the new model. One is the chicken-and-egg of getting a critical mass of both fintechs and banks to use it. Haring says the company will spend the rest of 2018 seeking fintechs and connecting them through APIs.
He says about 60 companies are now in talks with Finastra, with HedgeSPA, a Singapore-based artificial intelligence company that provides predictive analytics to hedge funds, the first to go live. But Finastra will need a few hundred such companies before it is ready to market itself more aggressively to its bank clients.
New business models
An executive at a different technology vendor says Finastra has the history and brand required to ensure banks trust it. But it will be taking on a huge commitment.
“From an architecture point of view, once you commit to something, you’re stuck,” this person said. “They will need to maintain all of those APIs and connections to back offices – forever.”
Finastra will also have to prove its value proposition to fintechs.
“This would be good if banks accept their due diligence,” said one co-founder of a fintech that personalizes user experiences for bank customers. “There’s value if we don’t have to go through that process every time.”
Häring says the platform will give fintechs a way to commercialize their business without tying themselves into exclusive deals with banks that crimp their growth.
“We can let fintechs sell their apps globally and grow their companies, not just become takeover candidates,” he said.
As for banks, he thinks that by the time Finastra can offer up to 500 APIs, it becomes attractive to their developers looking to solve problems across any of their businesses.
He acknowledges that banks have been reluctant to embrace cloud-based services. “Banks have a tendency to avoid the cloud topic,” Häring said. But Finastra’s view is that banks are inevitably going to adopt public cloud services to one degree or another – it’s just that adoption is slow.
