An AMEinfo Exclusive
Lost in the conversation of bitcoin price swings, blockchain, and multi-million selling NFTs, is the banking sector’s strong push to digitally transform its client services and offerings.
While not quite ready for full ‘Open Banking’ activities, the region’s financial sector is gearing up for this eventuality.
With a large presence in the Middle East and Africa, and from its headquarters in Dubai, leading global fintech player and Banking as a Service (BaaS) provider Finastra has over the past 25 years established services and partnerships with most top banks and in different lines of businesses, including treasury and capital markets, retail and corporate banking and even payments and lending.
“We bring the best of breed globally and offer it locally,” Serge Tohme, Managing Director Middle East & Africa at Finastra, told AMEinfo in an exclusive interview.
Serge says that no less than 50 banks in the ME region use Finastra, including all the major banks in the GCC and Africa.
The company, which is reinventing its own role from a product provider to a solutions enabler, has positioned itself as the strategic player to smoothly transition the financial sector into a new competitive landscape thanks to FusionFabric.Cloud.
What is FusionFabric.Cloud?
FusionFabric.cloud is global fintech player Finastra’s open and collaborative developer platform and marketplace for the region’s financial solutions.
“As a BaaS player, and in line with digital transformation trends in the financial sector, we are shifting our core offering from being a product provider into a solution and eco-system enabler,” Serge reveals.
“With FusionFabric.Cloud, Finastra aims to enable the financial industry, startups, service providers, and integrators to come together and leverage the platform to generate value for corporates, retailers, end-users, regulatory bodies, and central banks.”
This Application Programming Interface (API) container, so to speak, replaces having to shop around for different coders, purchase individual app solutions and later struggle through app integration.
Serge said that FusionFabric.Cloud is designed as a one-stop platform for universities, integrated service providers, fintech startups, banks, and even regulators that would like to develop apps on it.
Here’s a narrated example of how this works:
“If you are a retailer, you log in to your bank’s app which comes with features and functions, but at some point, you may want to have advanced reporting, things like historical trends on your expenses for the past 5 years compared to other people your age and profile, and see how you are benchmarked.
“Banks can’t do that, but if they are on the FusionFabric.Cloud, where groups of people and experts develop such things, then banks can easily enable such a solution using API integration without the need to code the service and it will appear on their client’s mobile phone, as requested.”
How banks manage relationships
Banks have the choice to charge their customers for this service or they may not, depending on whether their strategy was geared to monetize or attract more clients and business.
Also, banks do not compete with 3rd party providers in Open Banking formats. The APIs that banks have been developing will be complemented with 3rd party apps run by fintech gurus and/or creative startups in a way to bring value-add to corporates and retailers without the banks becoming developers themselves.
“And here the size of the startup is not important. It’s the value-add service they bring to the community via the bank’s platform, in this case, FusionFabric.Cloud,” explains Serge.
“Within our platform, we provide scrips and training for startups to develop apps. These are online, easy to use, free of charge, for creating and adding value, and later, we compile these creations or apps in a fusion store and offer them to the bank to pick from and subscribe to.”
“Finastra offers this service free of charge to the bank but, in return, benefits from ‘banks’ increased stickiness to our platform.”
“In case a bank would like to develop apps on the platform, then there is a minimal subscription cost depending on how many users they want to have access to, but we make our money from core banking solutions like corporate banking, retail banking, and others that are connected to the platform,” Serge says.
Finastra’s business model
Whoever wants to develop on the FusionFabric.Cloud will need to subscribe with Finastra for a fee. Once the coders’ apps are adopted by banks, they are returned a subscription fee by the banks that use them.
This way, banks no longer need a large CAPEX each year to fund special solutions catered to them, which Finastra’s original business was designed to do, and no longer have to pay yearly maintenance fees on these solutions.
“We have worked with our partners and thanks to FusionFabric.Cloud, we now take a lower subscription amount, repetitive year after year, over the defined terms, and this way we moved 90% of our clients to the subscription model in the Middle East and allowed us to have a fixed, cash flow, and utilize it to refinance and invest in the platform,” Serge indicates.
Serge added that yearly subscription fees vary from one bank to another but could bring in 5 and 6 figures in dollar values.
“What I do know is that top banks are allocating at least 50-60% of their CIO budgets into fintech innovation and digital transformation of retail and corporate banking,” Serge reveals.
“Banking branches are disappearing as they want to do their business online. Banks that subscribe to our platform arrive at the conclusion that they will reduce their cost of ownership, improve operational efficiencies and add value to their clients.”
Using FusionFabric.Cloud, Finastra is helping banks automate and digitize trade finance, simplify letters of credit (LCs), and streamline logistics shipments, and these increases in efficiencies help banks attract more and more business and volumes.
On the corporate banking side, clients nowadays need a 360% view of all relationships in the bank, across different geographies, and across different branches.
Finastra’s platform enables, among others, to chat to a robot advisor, simulate cash flows and asset investments, and leverage blockchain for not only transparency purposes but also to keep transactions and contracts secure, encrypted, and properly backed up.
“Banks need to offer new and modern solutions to clients because those who do not innovate will fall behind,” Serge advises.
BaaS and Open Banking: Survey results
Finastra’s own research ‘Financial Services: State of the Nation Survey 2021’ reveals that BaaS is set to have a notable impact on the industry in the next 12 months. Some 85% of respondents at global financial institutions including Hong Kong (92%), the UAE (90%), and Singapore (87%) expect the impact of this trend to be greatest.
Moreover, 6 in 10 UAE respondents will embrace collaboration with third parties if this supports growth through the creation of new revenue streams or services, and accelerates innovation and better ways of delivering existing services.
More than half of those surveyed said Open Banking is expected to have the greatest impact in the areas of trade finance and corporate banking followed by retail banking.
91% slightly or strongly agree that Open Finance is the future of banking.
Decision-makers stuck in the old ways of thinking were cited as a potential barrier by 58% of UAE respondents, followed by development costs (49%) and regulations being too tight (49%).