FinTech unleashed: Why banks and FinTech have a love-hate relationship
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Make no mistake, the FinTech space is booming — it has changed the way we do business and it is constantly challenging banks’ supremacy in the financial sector. But what makes it so important? We invited nine of the world’s biggest FinTech influencers to weigh in on the love-hate relationship between banks and the FinTech scene.
What is FinTech?
Chris Skinner, Chair of the European networking forum the Financial Services Club, has tried to define FinTech by looking at the definitions of traditional and emergent FinTech. In his view, “that new world is … recreating the world of finance with technology. It is creating a 21st century world of finance based upon technology. FinTech builds a new world of finance using a digital core that is IP-enabled. It sits hand-in-hand with the Digital Bank, as the new definition of finance and banking.”
Meanwhile, PwC claimed that “FinTech can refer to startups, technology companies, or even legacy providers. The lines are blurring, and it’s getting harder to know where technology ends and financial services begin.”
Innovation goes hand in hand with FinTech but what is it going to take for banks to start tackling this approach?
In the first part of this interview series, we asked nine FinTech influencers what got them interested in FinTech and if they think the phrase “evolve or die” describes banks’ situation right now.
9 answers: What got you interested in FinTech?
The FinTech Heroes
Mike Quindazzi: Early in my career, I had the opportunity to work on a number of what I would call today old school projects. While the hashtag #FinTech was not yet invented, and yes the technology was primarily mainframes and terminals, all of the projects had an important financial services technology component that drove significant ROI.
On one initiative, we looked at further automating the batch collection and remittance of client payroll taxes across every taxing jurisdiction in the US. On another, we leveraged the Automated Clearing House (ACH) to process large volumes of transactions and automatically collect customer invoice payments. On a third, we worked on a direct deposit to pay card solution specifically to help address the unbanked employee.
These experiences in my younger days helped me quickly realize the impact and high potential of financial service technology, not only in the industry but in others as well. The pay card project, in particular, highlighted the need for and potential economic gain from broader financial inclusion.
As my career progressed over the next few decades, I continued to build on my early experience by leveraging new and emerging technologies. Today, I find great satisfaction working with my clients, both large enterprises and venture-backed startups, with both strategy and complex systems integration.
I love the fact that FinTech has such a huge and increasing impact on everyone’s lives.
Jim Marous: It was a natural progression from my career out of university as a banker. From a beginning in the trenches of a bank branch system in a management training role, to the head of marketing at financial institutions, to a very long role as a strategist and business developer for leading direct and digital marketing agencies that specialized in the banking sector, I continued to shift my role with industry transformation. I began writing articles on retail financial services more than 10 years ago, joining The Financial Brand in 2014 and purchasing and publishing the Digital Banking Report shortly thereafter.
Spiros Margaris: I love the fact that FinTech has such a huge and increasing impact on everyone’s lives. Through innovation and technology, a lot of smart and great people can change and influence the financial industry for the better. It is an incredibly exciting time and space to be in FinTech.
Always remember, no matter what the financial markets do, you must know the FinTech industry is here to stay for as long as we use some form of computer.
Banking in its essence is social.
Andreas Staub: I started in banking immediately after university. This industry is part of my identity. The mixture between tech and human has been evolving for the past 200 years – I consider FinTech as nothing new. Tech is very fascinating but interestingly no matter what kind of technology was driving the industry it was (always) the human part that made the difference. Banking in its essence is social. It’s about trust, fairness and reciprocity. Tech helps to deliver these promises.
Chris Gledhill: In 2012, I found myself working for a rather old bank designing new things in centre of London, a city which was emerging as ground-zero for global FinTech awesomeness!
Pascal Bouvier: I have over 20 years of experience working with financial institutions and tech startups alike. As I moved back into an investor role after having operated companies for many years, I was naturally attracted to the monumental change the financial services industry is facing and ended up applying my skills to the intersection of “fin” and “tech”. The fact the financial services industry was a laggard when it comes to applying technology and entering the digital age and its sheer size were strong attractors.
Neira Jones: Difficult to pinpoint other than saying I was always interested in FinTech even before the word existed. If we take the definition of FinTech, as “Computer programs and other technology used to support or enable banking and financial services”, well I have been in technology all my life and started my career as a programmer, and have been in financial services for more than (mumble) 20 years… So I guess FinTech as we now know it was only a natural evolution…
David G.W. Birch: I came to FinTech from the payments field: my company was working with the banks, credit card companies, mobile operators and others and I became very excited about the opportunities to use new technology to deliver new and better services.
David M. Brear: I’ve worked in the broadest financial services industry my entire career and love that I can look at pieces of work that have touch millions of people’s lives. FinTech for me is about bringing about a new way of working within the industry. What more could you want?
Do you think the phrase “evolve or die” describes banks’ situation right now?
Mike Quindazzi: Putting aside FinTech for a moment, there has always been challenges in the industry, and today it is no different. Let me share a sample of today’s challenges needed to be mastered for institutions to operate effectively in tomorrow’s financial services market.
– Certainly Brexit will impact US banks in a number of ways: 1) If they subject to the legal, regulatory, tax environment in the UK, 2) if they have a reliance on movement of goods and services between the UK and the EU, and 3) if their business depends on the free movement of people between the UK and the EU. Banks are seemingly aware of these issues and should plan to be ready for when Prime Minister May invokes Article 50, the two-year process by which a state must leave the EU.
– In the US, President Trump issued an executive order on February 3 asking the Secretary of the Treasury to review the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2008 (Dodd-Frank) and report back to the President within 120 days of the executive order. He also signed another order requiring that two existing regulations be repealed for every new regulation issued. This changing regulatory environment comes at a time when the industry is transforming around new risk management cultures and ethics while rebuilding public trust and often playing defense.
– Today’s competitive and economic backdrop continues to change. Banks, asset managers, wealth advisors and insurance companies once competed only in their silos. While they still do today, they also face competition from non-traditional market players with new skills, funding sources, and approaches. In the prolonged low-interest rate environment, many have been driven to use cost containment as the key to success in a more complex regulatory environment. Others are scrambling for top line growth (both organically and through acquisition) in a search for new revenue opportunities.
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.
At first, many of the startups said they were coming to eat the incumbent’s lunch, now they’re asking them out to lunch.
These advances and others are further fueling concerns about FinTechs eating away at profitable customers and stealing away a generation of millennials. So, depending on where you sit in the ecosystem, these innovations are either downright unsettling or highly aspirational. Yet with all this discussion, we are starting to see clear strategies and paths forward in our new digital world.
At first, many of the startups said they were coming to eat the incumbent’s lunch, now they’re asking them out to lunch. And for good reason. Our clients are quickly realizing the value and position of incumbents in providing the distribution, while the FinTech innovators are developing solutions across sectors and use cases. Our PwC DeNovo team is doing the matchmaking, bring the sides together, and helping clients realize the synergies.
Jim Marous: The phase has been used to describe the need to adjust to market changes since the beginning of my career over 30 years ago. Most organizations could ‘dodge the bullet’ because it is so difficult for a consumer to switch providers and since almost all financial institutions provided a similar (suboptimal) experience. I believe the “evolve or die” phrase may be more true today than ever before because of the increasing comfort with digital channels, the power of data and advanced analytics and the expectations set by organizations outside the banking industry (Google, Amazon, Facebook, Apple and Uber). Our research has shown that the disparity between big and small organizations in customer satisfaction is increasing due to an inability for many firms to keep pace with changes in mobile banking, product development, customer experience and the ability to personalize.
Spiros Margaris: “Evolve or die” absolutely describes the banking industry situation. The faster we understand that there is no status quo but only up or down phases in our lives or businesses, the faster we will likely evolve for the better if we try.
Andreas Staub: This phrase is and has always been correct. 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. We will see fierce competition on price and lot of involuntary startup exits. In this sense, «evolve or die» is more fitted to FinTech startups than incumbents. This may sound a bit provocative but I would bet on it.
FinTech as we now know it was only a natural evolution…
Chris Gledhill: Evolve is a good term. Banks can’t continue on their course of optimizing 20th century banking. Those business models are reaching end of life so banks must evolve. It’s probably not as pressing as some might think. Banks have maybe four years to figure out what they want to be next.
Pascal Bouvier: First, it describes all financial institutions — insurers, asset managers, banks. Second, it describes financial institutions whether they are retail focused or wholesale focused. Third, the degree by which this phrase is applicable varies based on both size, complexity of the business model and geographic coverage. As a simple rule, the bigger the size and geographic coverage, the more complex and broad the product/service offering, the more extensive the client coverage, the truer this phrase is.
Banks have maybe four years to figure out what they want to be next.
Neira Jones: No, I don’t think “die” is the right word, it’s more a case of “Evolve or Become A Commodity”. With the advances in APIs, the regulations (e.g. PSD2) pushing for Open Banking, those organizations that can own the customer interface will get mind share. Those incumbents that do not understand this and draw strategies accordingly will be further removed from the customer experience and end up providing back-office services to those that own the UX. It means significant culture change and I have no doubt that some traditional banks will be successful at making this transformation, but others won’t.
David G.W. Birch: Well evolve, certainly. 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 M. Brear: All business must evolve continually. We are at a key phase in the information age, which has seen decade-old technical trends such as mobile and utility computing become commodities. They must be used to remain competitive but like evolution and natural selection highlights… it’s not for everyone. Evolution of the species is predicated on animals adapting to a changing environment. Whether the banks will be able to evolve or whether there will be casualties of this changing banking landscape is yet to be seen.
In the second part of the interview series, our nine FinTech heroes weigh in on the FinTech’s “disruptive” label and identify some of the biggest trends in this industry.
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 3-6, 2017.