The next phase of banks/Fintech collaboration: Influencers weigh in
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Last year, we talked about the love-hate relationship between banks and Fintech. Now it’s time to take this discussion forward and focus on the next phase of their collaboration. Fintech influencers Brett King and Mike Quindazzi weigh in.
The evolution of banks/Fintech collaboration
First came banks, then came Fintech, now we’ve got a complicated relationship on our hands.
Here’s what influencers said last year when we talked about the love-hate relationship between banks and Fintech:
Getting back to technology, the nature of the FinTech narrative over the past few years has been evolving. As well, the pace of technology change continues to accelerate. Rapidly evolving advances in artificial intelligence across chatbots, robo-advisors, claims, underwriting, IoT and soon blockchain, add another layer of potential to further shake-up the traditional business model.
The rise of startups is a logical step and part of the progress tech has made. But (this is a sad fact) most of the FinTech startups are delivering only commodity benefits like «cheaper, faster and better» and almost no social values.
I don’t think that banks will die — there will still be a Deutsche Bank a decade from now, but it may work in a very different way, more like a financial utility than a retail proposition.
David G.W. Birch
One year has passed since our conversation so it’s time to see how the relationship has evolved and what the next phase of banks’ collaboration with Fintech consists of.
Have a look at the interview series with last year’s top Fintech influencers:
In the first part of this interview series, we asked two influencers if blockchain is the future of Fintech, what happens if this technology becomes “the beating heart” of the finance industry and we invited them to weigh in on the value that’s stored in smart contracts.
Now it’s time to talk about the culture shift that goes hand in hand with the FinTech movement, its most mature sub-segments, open APIs and more.
Has the Fintech movement triggered a culture shift in banking or are banks resistant to change?
Brett King: Banks who resist will suffer from lagging infrastructure and experiences. Fintech globally has redefined much of the experience expectations of customers. I know for Moven both Wells Fargo Greenhouse and Chase Finn we’re heavily influenced by our design. The challenger banks in the UK have reset expectations on account opening and app features there. Alipay and Tencent’s WeChat dominate Chinese payments. Betterment, Acorns and Digit have redefined mass investment.
This doesn’t even touch blockchain and architectural changes. Banks are no longer ignoring the threat and frankly are spending billions to catch up. The smart banks are investing or partnering with Fintech because they realize it’s cheaper and faster than building themselves.
Many startups are taking note and playing nice in the sandbox so as to work cooperatively with incumbents rather than aim to disrupt them.
Mike Quindazzi: Absolutely. The Fintech landscape has evolved tremendously. In just the last two years, financial institutions went from declarations of war to an understanding of the value in Fintech partnerships, licensing and acquisitions.
In the next phase, financial institutions will move away from the Fintech department structure and incorporate developer-first strategic thinking across the organization structure. It is worth noting that many startups are taking note and playing nice in the sandbox (no pun intended) so as to work cooperatively with incumbents rather than aim to disrupt them.
What is the most mature sub-segment in FinTech right now?
Brett King: Globally? China payments with 92% of mobile payments on Fintech rails. Outside of that, I’d say challenger banks, cross border payments and robo-advisory is quickly maturing.
Mike Quindazzi: While Insurtech found a bigger voice in 2017, the retail payments segment of the Fintech ecosystem has reached a later stage of maturity. Consumer-facing startups have largely failed to wrestle away consumers from their traditional relationships.
Card-based volume continues to grow at multiples of GDP in the US, and although new models threaten to change how consumer perceive financing, we haven’t seen wide-scale adoption. Looking ahead, we might see a growing number of payments start-ups pivot from B2C to B2B, focusing on opportunities to leverage their technology to improve the infrastructure that features such as real-time payments and individualized rewards programs rely on.
Do you think Open APIs hold the key to the future of banking?
Brett King: This is a massive change. It levels the playing field for Fintech’s with access to data and rails that allow them to build super compelling experiences, but it reduces the advantages banks have as regulated institutions. It erodes most of the advantages banks have had from a regulatory platform perspective and forces them to adapt much faster to the experience changes driven by tech.
Mike Quindazzi: The way we consume banking service is changing, it’s become more digital, although at a fundamental level it has not yet seen wholesale change. The implementation of PSD2 in Europe, married with the success of several neo-banks to alter consumer expectations of banking services, bode well for a future change.
B2B partnerships will largely depend on Open APIs and as banking infrastructure becomes more microservices oriented, new systems and methods of communication will be developed to facilitate interconnectivity between parties while reducing their computation footprint. However, it is worth noting that APIs have had their own issues, such as the security breach Equifax suffered through an API, so this work must incorporate cybersecurity, or we’re likely to see another large data or monetary breach.
Open APIs favor those platforms that have the resources to invest in robust API data feeds and new services. This may prove to favor larger enterprises at the expense of smaller providers across the financial services landscape. Another primary risk comes in the form of cybersecurity, particularly as some of these APIs are integrating into IoT and edge computing. However, even open sourced development, with many parties reviewing code, have resulted in breaches in the past.
The last thing a dev wants is to come to a bank, work on cool stuff and have it shut down by some risk guy who thinks signing a piece of paper is the height of risk mitigation.
Does working in the finance sector pay off for software developers?
Brett King: Yes, but increasingly it’s getting hard to attract talent from mainstream tech. Banks like Chase, BBVA, Capital one and USAA are removing process, compliance and policy roadblocks to tech teams and this is the biggest thing banks must do culturally to attract devs. The last thing a dev wants is to come to a bank, work on cool stuff and have it shut down by some risk guy who thinks signing a piece of paper is the height of risk mitigation.
Mike Quindazzi: The exploration of decentralized applications will be the ultimate test of incentives, particularly as developers understand their growing value in an increasingly digital world.
The question can be put back on financial institutions: how might incentive structures change to ensure that developers will receive in compensation at least part of the value they are creating in a firm?
Do blockchain and IoT go well together? Is this “relationship” built to last?
Brett King: IoT assets will live on the blockchain managed by smart contracts. It’s built to last because nothing we have in existing core systems could cope with an autonomous vehicle or drone that owns its own bank account for automated commerce.
Mike Quindazzi: Both narratives are not dependent upon each other, but adoption of one can create greater opportunities for growth for the other. Both have potential to improve existing processes (i.e. supply chain audits) and build new categories of services (i.e. M2M payments). Blockchain tech has potential to make it easier for organizations to leverage IoT technologies.
For example, corporates commonly run into the problem of data cleanliness, but blockchain solves much of that. The implementation of IoT should make it easier to monitor a wide network of physical and virtual objects, and standardize information at the edge of computing for as little or as much information as necessary. This is primarily what makes IoT a complimentary adjacent technology to facilitate transactions and information gathering for blockchain solutions.
If you’d like to know more about the latest trends in finance and meet the top movers and shakers in the global financial scene, join us in London between April 9-12, 2018.