EU banks should seek collaboration with innovative fintech providers, says Deloitte

However, the 24 payment experts interviewed by the professional services firm as part of a report on "disruption" in the European retail payments market said that there was still a place for in-house innovation in relation to non-card payment products, according to Deloitte's final report.

Deloitte said that without action, big banks risked being reduced to "utility" status, with innovative services like Paypal taking over front-end payment initiation and processing services. Although this was a "viable" approach, banks risked lower margins and eroding consumer trust as a result, it said. Regardless, it said that developing EU regulations meant that the 'status quo' in which payment systems continue to be run by and for major banks could not continue.

"Deloitte believes that banks' strategic responses should be determined by four factors," it said in its report. "Are the payments card or non-card? How open is the payments system to new players? And how much do customers trust in non-banks as providers of payment services, compared with banks?"

"Industry collaboration is a cost-efficient way of developing new infrastructure, taking it to market and making it available to customers ... Collaboration is also important for achieving industry-wide inter-operability and greater user acceptance," it said.

According to Deloitte, banks accounted for only 19% of the $10 billion invested in fintech in 2010. Investment by non-banks accounted for 62% of the total, with collaboration between banks and non-banks accounting for the remainder.

Deloitte suggested that smaller banks should always seek selective collaborations with non-bank providers, while large banks should seek to partner with or acquire fintech while developing their own products in-house. However, these banks "should be careful not to over-invest", it said.

"Where payment systems are opened up and customers trust non-banks, it makes less sense for larger banks to 'go it alone' in an innovation race that they are unlikely to win, given their culture, regulation and regulatory systems, and the skills and firepower of the non-banks ranged against them," Deloitte said. "Rather, it makes sense for some larger banks to build scale as utilities, exploiting their competitive advantages in compliance and resilience, providing the essential 'rails' in what continues to be a fast-growing area of activity."

The report provided some examples of where banks had already benefited from a more collaborative approach. Several banks and retailers had already signed up for Zapp, a new mobile payment method linked to consumers' existing bank accounts and applications which is due to launch shortly, it said; while several interviewees also mentioned Paym, a service which allows payments to be sent and received between bank accounts using mobile phones, as an example of a successful fintech development.