As well as being an incubator for innovation, one prominent feature of the payments sector today is the sheer volume of discussion and opinion that exists about its possible futures.
While much industry analysis centers on the sentiment that FinTech services are destined to change the shape of banking forever, there are varying conclusions on when and how the process will play out. Key figures inside the banking and FinTech arenas also differ on what lies ahead for start-ups, especially when it comes to the topic of the two seemingly opposing forces forging partnerships. A Guardian article from June captured the state of play nicely, quoting a FinTech innovator who referred to banks as “wolves in wolves clothing,” and a senior banking figure who claimed his organization offered start-ups the “expertise, access to clients, and brand that these companies need in order to scale and achieve growth in a more prudent manner.”
One veteran in the field, Chris Skinner, recently weighed in with his thoughts on the future of banking and FinTech in an extensive interview with Emerging Markets Magazine. With over 30 years of experience in the area of banking technology and 10 books on the subject to his name, his point of view has become as influential as it is insightful.
In a helpful starting point to the interview, Mr. Skinner offers a definition of FinTech that succinctly captures the core issues it exists to address. In simple terms, he says, the FinTech sector can be described as “making the financial markets internet-ready, as many bank and insurance systems were built before the internet was invented or without a consideration of customers accessing those systems directly through the internet 24/7.”
The knock-on effects of banks continuing to operate with systems that have undergone minimal change in recent decades are significant, according to Mr. Skinner. “Moving to digital is not simple,” he suggests, “new players can transact the same services—loans, mortgages, insurance, wealth management, investments, payments—at a fraction of the cost of the old. As a result, the old companies cannot compete with the new if their cost models are ten times more expensive … so they have to move rapidly from physical to digital.” Beyond operating costs, Skinner also cites banks’ main shortcomings in the face of FinTech innovation as “systems that are slow,” attempting to be “all things to all people,” and an inability to leverage data for maximum personalization.
With the necessity for change in mind, says Skinner, there has been a shift towards financial companies “becoming IT companies” and vice versa. This presents challenges on both sides, especially for banks, who may acknowledge the need for digital services but often still tend to think of them as ‘add-on’ features. Such an approach is likely to be fatal, according to Mr. Skinner, who argues, “banks are led by leaders who delegate digital to function or person—the Head of Digital. How can you delegate the future of the bank?” Again emphasizing what he believes is at stake, Skinner warns banks to “… work out how your company can play a part in this transformation or be excluded and die.” One trend that suggests financial institutions are well aware of the need to adapt and forge potentially beneficial relationships with FinTech innovators is the huge jump in corporate investment in the sector in recent years—a figure that rose from $609 million in 2013 to £1.4 billion in 2014. By the end of 2015 that sum is expected to double again.
In praise of FinTech start-ups, Mr. Skinner says they are simplifying “the old complexities of markets” by focusing on specific problem areas in a way banks either can’t or won’t. By doing so, he believes, the future role of FinTech will be to “adapt and change everything everywhere.” Among the handful of start-ups he praises by name is Traxpay, who, he says, are among those “really changing the game.”
In conclusion, Mr. Skinner reiterates the recurring theme of the interview, posing hypothetical questions to banking industry chiefs. “Does the leader of the firm—the CEO—have the guts to commit to digital 100?” he asks. “If they don’t, does the firm have a future? I doubt it.”
Read the full “Banking on the Future” interview with Chris Skinner here.