Making clever use of some instantly recognizable symbols, FinTech startup TransferWise recently ran an ad campaign that used terms such as “$CAMM€D” and “DA¥£IGHT ROBB€R¥” to highlight the hidden charges incurred when making international bank transfers. The less-than-subtle dig not only plays to a culture in which banks are often viewed with withering suspicion by consumers, but also encapsulates something of the irreverent zeal with which tech innovators are out to alter the landscape of financial services.
The idea that the banking sector is ripe for digital disruption is well established, and the rise of third-party service providers has already redrawn the boundaries on everything from how we make payments to where businesses turn for loans. There is a definite consensus, however, that although the applecart has already been upset, it won’t be long until it is overturned and stripped for parts—and banks know it.
In the 2015 World Retail Banking Report, banking executives identified internet and technology firms as the biggest threat to their business in the future. Over 83% of those surveyed stated a belief that customers are comfortable conducting their banking through such entities—compared to the 64.8% who felt consumers were at ease doing their banking with banks. Moreover, as the report elaborates, banks are keenly aware that “many technology firms have a better feel for the customer experience and how to optimize it.”
It should come as little surprise, then, that banks are actively attempting to ensure they don’t become a cautionary tale in the story of digital disruption. One notable example is JPMorgan, as outlined in a 2014 article with the intro line, “If you can’t beat them, hire them.” The post details how one of America’s biggest banks has turned to Silicon Valley in their quest to build for the future, bringing in talent from the likes of Yahoo, Google, and the Huffington Post. Elsewhere, the British Bankers’ Association reiterates the fact that banks are “recruiting senior managers from the digital world.”
Despite this approach of employing digital-savvy talent, working practices within banks are still seen as an impediment to innovation.
Outlining some of these practices, commentator Simon Taylor highlights how banks today “…still talk to their customers and each other in a digital representation of the paper world in the 1970s.” Moreover, he claims, the vast sums of money banks are investing in technology are misleading, with 97% of their budget in this area actually used “to avoid having to replace core systems” (a “Herculean” task with an “astronomical” price tag according to another recent article). If his estimation is right, the remaining 3% that leading banks are really spending on Research and Development adds up to a mere fraction of what top tech companies invest in the same area.
Some also argue that banks are lagging behind in innovation due to a catalog of industry regulations. Perceived security risks that arise with, for example, the integration of APIs, can act as a red light for banks keen to avoid complex regulatory processes. Suddenly, the sparks of creativity that keep the lights on in successful startups are extinguished, and risk-taking FinTech companies, currently free from such constraints, can thrive.
Overall, there seems to be a growing consensus that banks can prosper in the face of disruption only by embracing the possibilities it presents, although there is clearly disagreement on what stage this relationship is at—some stating “FinTech is a giant opportunity not being taken advantage of” while others believe banks and FinTech companies are “finally seeing the mutual benefit of collaboration.” Whatever the case, both positions acknowledge the fact that the brightest future for banking is one in which its core competencies become more closely intertwined with FinTech innovations. The extent to which banks adapt to that reality may well determine their ultimate fat€.
Source: Capgemini Financial Services Analysis 2015