BY Capgemini
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What happens

According to the first edition of the World FinTech Report, published by Capgemini and LinkedIn in partnership with Efma, half of the world's bank clients use products or services offered by at least one Finance Technology ("FinTech") company. 

so what?

Head of Card Payments and Practices at Capgemini Global Financial Services.

Christophe Vergne is Head of Card Payments and Practices at Capgemini Global Financial Services. Before joining Capgemini 10 years ago, this Essec Business School graduate held different positions within...

FinTechs such as Bankin and Linxo create relations with their clients that enable customers to bypass banks, by proposing account aggregation and budget management services. With a new European directive on payment services in the pipeline, such companies will be able to go even further.

How does account aggregation threaten to cut banks out of the equation?

FinTechs that specialise in Personal Financial Management (PFM) such as Bankin and Linxo currently offer quite basic services, often at either a low cost or at no cost at all. Their mobile applications pool together bank accounts from different banks, divide transactions into different expenditure categories (food, travel, leisure etc.) and alert users when a certain threshold has been broken. 
In the future, with the new European directive on payment services (DSP2), which is set to enter into force in March 2018, these companies will be able to benefit from the status of "Third Party Providers (TPP)". FinTechs will therefore be able to carry out bank transactions such as bank transfers. 

This will bring about a radical change to the business models of such companies. Beyond the role of account aggregators, they could become like comparison websites, thus eroding even further the commercial relationship that banks have developed with their clients. A client, for example, will be able to authorise Linxo to find out which banking institution offers them the cheapest interest rates on their mortgage, without said institution having any connection to their current account. 

To this we can add another threat, that of instant payments?

Correct. The European Central Bank is pressing for instant payments to enter into force in early 2018. As the name indicates, money transfers will be almost immediate, without having to wait a minimum of one working day, and this will be the case 24 hours a day, 7 days a week, 365 days a year. The transaction threshold will be 15,000 euros. 

DSP2 provisions coupled with instant payment will lead FinTech companies to offer multi-banking services, that is to say money transfers from one bank account to another in real time. Their target audience will be individuals but also SMEs, as the latter notably suffer from difficulties regarding access to liquidity management services. 

Finally, clients will be able to shop around, especially in countries such as the UK where credit ratings are made public. On the basis of a positive rating, a banking institution knows how much money it can lend to an individual or a business leader. Inversely, the Bank of France only collects unfavourable information (negative ratings).  

How are banks responding to this?

All banks are exploring the possibility of either offering these kinds of services themselves, taking over a FinTech company or, at the very least, forging a partnership with a FinTech. 

In theory, partnerships between banks and FinTechs are win-win for both sides. The FinTech company offers an astute understanding of client's needs and a seamless user experience, whereas the bank brings security, reliability, longevity and scalability to the relationship.  

The stakes for banks are even more important as the profitability of their products is dwindling due to historically low interest rates. They cannot afford to lose clients who are attracted by these types of services. 

In the short term, they can decide to cosy up to FinTechs without having to invest any of their own funds. Banks are already involved in major projects such as regulation compliance and transforming their infrastructures. 

Who cares?

  Faced with account aggregators, major banks have decided to retaliate. According to the French financial newspaper Les Echos, BCPE is set to launch its own initiative in November 2016. Indeed, this was already being hinted at a year ago by Patrick Bianchetti, Assistant Director for Development at Banque Populaire, in an interview with the same newspaper.

- Sociéte Générale is also getting ready to introduce a similar service, using technology developed by Fiduceo, a start-up that it acquired in 2015 via its Boursorama subsidiary.

- Crédit Agricole bank has opted for a different approach, buying into Linxo at the start of the year. Finally, at the end of October, HSBC France officially rolled out its Personal Financial Management and Account Aggregation mobile application, also in partnership with Linxo. Meanwhile, Linxo has also created partnerships with Maif, Fortuneo and BforBank. In the UK, Barclays, Lloyds, RBS and Santander have all followed suit with similar activities.
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