FinTech challengers are poised to eat banks’ lunch if incumbents fail to provide a technologically-driven customer experience, HSBC’s global head of payments has said.

Speaking on a panel at the Finastra Universe conference in London, Andrew Pearce said that the greatest threat to the business models of established banks is the risk of disintermediation, as customers increasingly rely on technology companies and apps to carry out their online transactions, thereby losing touch with the banking brands that support them.

Giving the example of a customer paying for an online music streaming service, he explained: “What they don’t actually see is the movement of the money through the bank, it has to go through the banking rails but they don’t actually identify that there’s a bank involved in a branded sense.”

Pearce added that incumbent banks need to accept that the transition to tech-based payments services are a “reality” and underlined the need to utilise customer data efficiently and constantly create value for customers in order to ensure that banks “don’t become completely anonymous”.

Furthermore, global banking giants needed to “get their head around the fact” that banking business models are no longer “a silo based on particular divisions and products”, but actually a customer experience issue to be focused on.

“If we can’t solve that, these existing platform players, who are quite clever and very nimble, will start eating our lunch - if they haven’t already.”

Asked whether HSBC was weighing up changes to its business models and overall strategy to head off competition from tech giants such as Amazon and Google, Pearce explained: “We don’t sit around the place and say we need to focus on this particular group of competitors, because they’re the ones that are going to take us out.

“It’s almost the wrong way of thinking, we need to say what customers want, can we give them that and if we can, it doesn’t matter who the competitors are.”

The urgent need for banks to adapt to the changing expectations of customers when it comes to payments and banking services was a position echoed by Julia Persson, head of cash management as Nordic-Baltic banking group Swedbank.

Outlining the structural and strategic advantages shared by challenger banks and FinTechs over their more established rivals, she explained: “They are deploying new services several times a day and then they have the ability to scale it up immediately; none of us traditional banks are able to do that.”

She explained that Revolut had mastered the model of unbundling and rebundling a suite of financial services, starting with a foreign currency debit card for international travellers and extending into the launch of an in-app trading platform.

Persson, who leads cash and customer management at the Stockholm-based bank, highlighted that for years the corporate and retail banking industries have lived like a “gated community” owing to a raft of regulations and high barriers in the field of data protection.

“With PSD2 regulation we are forced to open up information, another thing that’s coming is a democratisation of technology, other players in the market have access to cloud computing they have access to the most advanced and latest technology without being forced into huge investments. So to me what is happening is the democratisation of banking.”

Persson suggested that the changes taking place in the industry were an important step in driving incumbents to reorientate their business models towards a more customer-focussed paradigm.

“Actually I am very glad that we are getting disrupted,” she explained. “I believe this is a way that we will all be better, both bankers and FinTechs and hopefully clients will benefit.”

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