The payments industry has seen huge innovation over the last five years, and consumers are reaping the benefits. Unfortunately, the benefits to the business world have been slower to materialise. However, banks that traditionally viewed fintechs as the “enemy” are now considered valued partners, and that is good news for developing businesses.

Debit cards aimed at travellers, the growth of money transfer services, mobile-only neo-banks, big tech racing to be a payment method of choice and the ubiquity of digital wallets in Asia are just some of the huge changes consumers have seen. It is only a matter of time before these innovations reach businesses.

It begins with banks, but takes off with fintech

The IT systems on which the traditional banks are built are up to 50 years old and are no longer fit for purpose for today’s demanding customer. But, given the absence of competition and the high cost of upgrading, the incentive for banks to innovate has been lacking. Until now.

This has coincided with the efforts of regulators to increase competition and develop a finance industry fit for the 21st century. New legislation gives third parties access to core customer information to deliver services previously monopolised by banks.

At the same time, emerging technology and an entrepreneurial spirit has led to these companies creating services that benefit business and compete for banks’ customers. For example, Currencycloud allows businesses to avoid some of the charges associated with international payments while delivering the speed and transparency traditional banks struggle to offer.

And while technology and regulation have brought massive change, perhaps the single biggest change is the customer.

The biggest drivers of change will be businesses and their employees

Millennials and Generation Z are the core of the future workforce. They are digital natives for whom living online, on the move and where almost everything can be accomplished with a finger-swipe on a mobile, is entirely natural.

So, when a neo-bank such as Starling offers them a whole new way to bank, or when Apple allows them to pay with their watch, or Revolut offers savings on holiday money, they take it. When you see the ubiquity of digital wallets such as Alipay and WeChat in Asia, you can see a future where the traditional banks are no longer the core of the financial system.

When new services make life simpler, easier, faster or cheaper, why stick with old, traditional, opaque and costly alternatives?

As the younger generation’s responsibilities grow in business, they will develop a similar approach to their business banking as that with personal banking – they will move for a better service. Traditional banks must adapt.

The quickest route for banks to do this is through partnerships with fintechs. The cost of building new core banking technology is prohibitive but partnering with fintechs is not. We are seeing more and more banks move in this direction. It is their lifeline to keeping their customers. And the big winners? The customers.