From competition to cooperation: the new dynamics of financial services with Aurélien Viry

‍Aurélien Viry (CEO of Societé Generale Factoring) details how regulation and technology have worked together to create new entrants into financial services. He argues that banks and fintechs should continue this progress together, using regulatory frameworks as springboards to success.‍

There’s a common misconception in finance: fintechs are coming to disrupt banks. In reality, they don’t serve the same purpose, and shouldn’t try to. 

This misunderstanding lives alongside three other familiar ideas: 

• Banks are too old and slow to innovate
• Regulations only stifle growth
• Fintechs are held back by both, and have to take serious risks to succeed

The truth is that banks, fintechs, and regulatory frameworks usually coexist well. Each only really makes sense with the others.

I want to think beyond the idea of fintechs disrupting banks, or of regulations as a pure blocker to innovation. As I’ll explain, if banks and fintechs can collaborate smoothly and embrace the regulatory environment, everybody wins.  

Background: major shifts in the banking industry

Looking back over the last decades, there are three major catalysts for change: deregulation, reregulation, and technology.

Deregulation

We hear a lot about regulation and the frustrations and limitations it creates. But the modern regulatory environment doesn’t compare at all with what we had only 35 years ago. 

In France, for example, the possibility to provide financing was framed by the state. Each bank had a certain amount of loans it could grant. The capital markets were very small and shallow. And there weren’t many public markets. It’s hard to imagine this kind of setup today.

That completely changed during the 1980s. The banks were privatized, and new asset classes like derivatives were created and started being traded. All this deregulation triggered a huge boost to the finance industry. Once you have a market for derivatives, you can manage risk, you can create hedging products for corporates and new investment products for individuals. 

So when we look at the rate of innovation and change in the finance industry, we mustn’t forget this crucial change. We couldn’t have even a fraction of our current services under the old structure. 

Technology

Technology has also an obvious and significant impact. When I started, there was no email, no smart phones, and very little data computation. We barely had Excel. This trend has been steady and will only continue. 

The finance industry has done well to harness all these new technologies. They’ve completely changed the scope of the products we offer and the ways we measure risk. And of course our interactions with clients. 

Now the focus is on Gen AI, and who knows what’s coming next? 

Re-regulation

As a check on this rapid innovation, we have an increased focus on new regulations. And in particular on covering some of the gaps created when initial regulations were removed. It’s a continuous cycle - governments remove rules to allow for growth and innovation, and then put new ones in place to avoid serious issues. 

I don’t see this re-regulation as good or bad, per se. Regulations have created new entrants in the market—fintechs, shadow banking, payment initiation. With new players, you get innovation and better service for clients, more competition and better prices. Much of this has come from government intervention into the ways finance has operated. 

The EU in particular has tried to promote competition. In the past, corporations had to use the technology provided by their banks. So switching banks meant changing technologies, and most companies weren’t willing to do that. And this killed competition.

The new regulations have eased the process for clients—they’re now able to get the best service from different banks. 

And the new rules around e-invoicing are very exciting in the same way. Instead of each bank or company having their own processes—which is a huge drain on energy and costs for both providers and subscribers—we’ll have a global standard.

It’s great for the state, of course, because it can collect VAT easily. But it will also be easier for companies to pay, send, and reconcile invoices. We can expect real productivity gains and we should see a reduction in payment delays and chasing. 

We should all welcome standardization. Overall, today’s regulations have actually opened up the industry for the benefit of the consumer in terms of service and pricing. 

How banks and fintechs should co-exist and collaborate

Even with new players and technologies in the market, banks are very concentrated. In France, seven or eight banks control maybe 85% of all retail deposits. And a lot of banks try to serve all manner of clients—average consumers, the wealthy, SMBs, large corporations, investors and insurance groups. 

Eventually, banks won’t be able to do everything for everyone. And the largest banks are all trying to simplify and become less complex—especially because regulation is cumbersome and costs a lot of money. Banks are more interested in agility and prioritization today. 

HSBC has chosen to divest certain markets and products. Citi is doing similar things in the US. And the same goes for us at Société Générale. We’re selecting areas in which we can excel and divesting in others. 

This leaves room for others to grab market share. 

The challenge for banks

Banking is one of the few industries where the distributors and the producers are the same. We manufacture our products, we process them, and then we distribute them to clients. This creates complexity.

In the same way that serving too broad a market hurts banks, so does producing every new product in house. Banks can be slow to recognize the need for change in the first place, and then the time to create a new service can be long.

At the same time, technology is fuelling increasing consumer expectations. The bar is getting higher. Banks now need to integrate with so many systems and external references, and this is a significant investment. It takes time and a lot of money.

So even if banks want to (and are working to) simplify, customers won’t accept a bare-bones service.

The role for fintechs

The new possibilities lie in open architecture—Banking-as-a-Service. Banks can focus for some services solely on distribution and let fintechs and new players be the producers. Banks can then cross sell these new services to their clients very efficiently, irrespective of the fact that they’ve been created and processed by others. 

Free of legacy, fintechs are very good at setting up new services from nothing. They cater to specific clients’ segments & use cases, rather than trying to be everything to everybody. If they did that, they would become banks themselves. They would then quickly get caught up in the complexities banks have to deal with. 

So there are real opportunities for fintechs to offer better services and better prices in specific areas: becoming highly specialized and streamlined providers. 

And that’s when they become very interesting to banks. If they can integrate and offer those specialized services to customers—but let fintechs create and maintain them—that’s a product they don’t need to build integrate and maintain themselves. 

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How we can integrate the two

The key obsession needs to be with working together, not competing. Adding value to one another, rather than destroying it. 

The great thing is, with open banking and our current regulatory framework, banks and fintechs can work in harmony for the benefit of everyone. Customers can stay with the banks they trust but still access the latest services, and banks and fintechs can offer new products to a wide audience. 

One example is fintechs providing “bank agnostic” technology. They have B2B platforms which can be accessed both by companies and banks. Companies can now switch banks easily without interrupting their internal processes and records or launching an IT project. It’s a bright future for everybody. 

There’s a real advantage to having the two sides working closely together. 

Less disruption. More partnership

Let’s finish by revisiting those ideas we introduced at the top: 

Banks are too old and slow to innovate. Yes, Banks that serve every potential customer with every possible product have a lot of complexity and competing priorities to deal with can indeed be slow to adapt. But banks are becoming more agile—intentionally—and partnerships with startups and fintechs enable them to move faster. 

Regulations only stifle growth. There is certainly such a thing as overregulation. But we can also thank regulations for increased competition, more diverse services, open banking and, of course, global risk mitigation. The rules are constantly evolving, typically in response to consumer needs and protection. Businesses must understand this and work with them.

Fintechs are held back by regulations and banks. If fintech’s goal is to replace banks entirely, it’s destined to fail. But startups should recognize the natural interplay between themselves as producers and the banks as distributors. Banks have enormous customer bases and need to be able to propose the best products, whether inhouse or from the market. The fintechs that can build these and work with the banks to distribute them have massive growth potential.

Get this collaboration right, and everybody stands to gain. Banks can be faster and more agile, while continually adding new services and broadening their consumer base. Fintechs can lead the great innovations of the future and get new products out to the world at scale. 

And consumers can have the excellent experience they expect, and still be protected by the rules and regulations they need. Let’s keep pushing for cooperation, rather than conflict. 

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ABOUT AURÉLIEN

Aurélien Viry is CEO of Societé Generale Factoring, which provides lending services to SMBs and large corporations. He has more than 30 years’ banking experience, including 22 years at Societé Generale. His roles have included internal consulting, COO of a financing company, Chief Risk Officer of a retail bank, and years in capital markets.

Aurélien has lived and worked across Europe, Asia, North and Central America, and prizes the wide range of roles and cultural experiences across his career.