Investment up for FinTech, but where’s the innovation in banking?
Unless everyone else is doing it, banks aren’t going to be leading the pack when it comes to innovation in technology. With startups fuelling the financial IT boom, what do banks need to do to get their development areas engaged?
The FinTech and Financial IT space is booming, and recent numbers show that Europe is being showered with investment to the tune of billions of dollars.
The new ideas being backed in the startup industry show the innovation gap between emerging and more established business, which is a sentiment echoed by many developers and players in the financial world.
The investment pouring into the UK, Germany, Netherlands, France and Sweden (to name a few) has resulted in a reinvention of finance as we know it: the field is no longer dominated solely by the big players, and venture capital is pouring cash into the space as we speak.
There’s a reason for this. Brunon Bartkiewicz, Chief Innovation Officer at ING, has said that startups are early indicators of customer needs. The funding that startups such as Number26 and TransferWise have been given indicate that people want their banking and their transactions to evolve.
The innovation game
Banks have often been called the main culprit when it comes to lacking innovation. Peter Lawrey, lead developer of OpenHFT, has said that investment banks in particular “tend to be much slower to move and much more risk adverse”. To execute ideas, they need to be willing to try, however Lawrey admits that they’re more reluctant to take the lead in something new or improved.
A lot of the innovation that the financial IT space is seeing requires an overhaul in the way established financial groups look at their IT areas. Dr Jamie Allsop, Director of Clearpool.io, says that “many financial companies see their development units as a necessary evil more than a primary producer of actual business value”.
In this day and age almost all financial companies rely heavily on their technology to function but still treat that function as having second-class importance to the business as a whole. That many of these companies are financially comfortable allows them to paper over failings in how they utilise their development capacity.
In spite of this, banks are still paying 33% to 50% more in developer salaries, with the focus set squarely on being risk averse. However, working on more expensive systems might not be as appealing to developers as new ideas and a potentially new approach to tech in the field.
The hesitation that banks have towards new technologies is said to be driven primarily by fear, according to Mashooq Badar, co-founder of Codurance Ltd. Banks fear what new tech will do to its systems, as well as to the careers of its people:
I also found that this fear is so entrenched that people discourage you from introducing something new even when they don’t have any understanding of the risks involved. They have the attitude that, “if it’s new then it must be risky”.
Newness and riskiness are par for the course when it comes to the startup scene. It’s due to the guts (and often cash) of entrepreneurs and developers that are willing to take a chance that could potentially crash and burn.
What is it going to take for banks to start tackling this approach? As Dr Allsop says, a big enough failure can often create an opportunity to try new things.