Why banks are reluctant to enter the roller coaster of FinTech
Colorful roller coaster seats image via Shutterstock
How can one enable innovation in banking? The answer lies in convincing the end client that innovation is safe and banks are not taking any risks. Of course, this is easy to say but not that easy to execute.
Imagine you are in your late 80s, made millions in savings. Would you take bold steps and risk what you have already secured or will you just take time to enjoy your days? Now imagine you are part of the board of a multinational bank that has big market share and you are in charge of innovation. Would you push your people to come up with the most ground-breaking solutions or would you innovative just enough to keep your market share? This might give you an answer as to why many of the big names in banking still use mainframes and they are reluctant to enter the roller coaster of FinTech we have been witnessing the last five years.
Blockchain, NFC, Peer to peer lending are just a few of the options traditional banking could have fully adopted. This would have had a tremendous impact on the way we exchange transactions, do business and live our lives. However, I cannot name a big bank that has jumped on the bandwagon and delivered a fully-fledged product in this area. Just the opposite — the stories I hear are, for example, about two of the top executives of BNP Paribas in Bulgaria leaving the company to start their own Peer to peer lending platform called Klear. Why didn’t they initiate this project inside the organization?
I think there are two factors causing this:
- Internal factor: Company culture in the traditional banking
- External factor: The public image of banks is all about security, while innovation relates to risk.
But before we delve into details, let’s first define what is innovation in the eyes of a bank executive and what we, the “disruptive innovation” fans, picture in our minds.
What is innovation according to banks
I have heard stories that only changing the background color of the corporate banking portal took six months. That should be enough to set the tone of what you can expect when we talk about innovation in a large banking institution. So forget about authorizations of transactions through face recognition or personal branch in your home via augmented reality.
Last year, my company Dreamix developed a bespoke Java based software solution for a banking organization. It was considered innovative in terms of internal banking processes and how one can create new products (deposit or loans) without the need of any IT support.
Usually, new banking products need a lot of IT involvement — for each new type of deposit/loan you need someone to implement tens of forms and wizards.
Instead, we managed to remove IT from the equation by implementing metadata driven framework for form generation. This way, operations can work directly with marketing and create different forms and wizards, without the need to call any IT personnel, which cuts the time for execution.
For some of you this might sound like something not that important, but if you need to wait six months for to change the background, imagine how much time you need to create a new product.
Company culture in banking
“Nobody has been fired because they use…” is a sales idiom used by large software vendors and it is a great epitome of the risk averseness in banking. The bureaucracy and the steep hierarchy in these organizations are transforming them into an uncompelling workplace for people who want to disrupt industries. Additionally, the attention is always on “not failing” rather than “implementing something new”.
Innovation is always linked with uncertainty, banks are always linked with high security
Imagine you are about to become a client of the ImaginaryCryptoBank. How would you feel if you knew your deposit is turned into cryptocurrency and a distributed network is in charge of authorizing the transactions? You, being the reader of an innovation-oriented media, might be completely OK with this fact knowing that it will reduce the process time (real time transactions rather than twice per day RINGS transactions), the costs (thus bring down the taxes) and will be even more secured. However, chances are that your grandmother will be terrified if there would be nobody in charge of this network and everyone would be able to add a node and be part of this infrastructure. She will certainly prefer the old-fashioned bank that is not powered by the mechanism behind the dodgy “bitcoin” currency she is hearing scary news about on TV.
How to enable innovation in banking
I think the answer lies in convincing the end client that innovation is safe and banks are not taking any risks. Of course this is easy to say but not that easy to execute.
We have a good example of consortium of banks coming up with a radical move to start a joint blockchain project. This way none of the big players risks their own reputation.
Another way to announce innovative projects is by strongly focusing on the physical design and digital UX of the innovation because, believe it or not, the mass client judges how reliable something is by the external look of it. For example, people facing a slowly loading website believe the end product is not stable. A good example here is Procredit Bank applying Digital Signage and educating their customers that technology is good for them.
To read more about the marriage between software and finance, download the latest issue of JAX Magazine:
Does working in the finance sector pay off for software developers? The answer is “yes”. IT is a must have for most banks these days – a massive change from its previous “optional” status. That being said, if banks are trying to win developers over, why shouldn’t the latter learn a bit about this sector?
The technological needs of the finance industry include aspects such as Continuous Delivery, Java, Big Data, machine learning, low latency etc. By embracing these elements, the finance sector can change the status quo and co-exist with what appears to be a fierce opponent: FinTech. How should banks respond to FinTech? We invite you to open the magazine and find out.