At the end of 2015, Bank of England governor Mark Carney declared that Britain’s financial sector left post crisis period and the dust has finally settled after the downfall of Lehman Brothers. New regulations have been put in place in order to maintain control over the bosses at major banks and the threat of billions of pounds in fines and compensation looms over them. Alongside this, as all seven of the UK’s leading lenders passed their banking stress tests, it questions how the traditional financial sector will enable fintech, or whether fintech will disrupt regardless.
The Bank of England’s Financial Policy Committee highlighted that banks should undertake preventative measures so that they are prepared in the event of a crisis, however Carney implied that regulations would not be the best way to raise capital. “There is no Basel IV. Our objective has never been to raise capital without limit or raise it by stealth.” All this confusion surrounding the traditional sector could encourage customers to move their business to newer companies, especially in the UK as James Allgrove, Head of UK Growth at Stripe explained.
“Fintech is fast becoming the backbone of UK economy, enabling businesses to engage with customers in thousands of new ways and sell to anyone, anywhere and in any currency or payment instrument. It’s democratising the world of finance and levelling the playing field for entrepreneurs to compete on the merit of their product, rather than size. Entrepreneurs are using Seedrs to raise finance, MarketInvoice to borrow money against unpaid invoices and Stripe to sell to a global customer base,” Allgrove said.
CMO Rob Israch at payments company Tipalti takes a similar attitude and explains how more and more organisations are searching for different solutions to automate their existing operations. “The current manual processes being used today to manage supplier payment processes are simply too slow, error-prone, and costly for this not to be streamlined. The ever-increasing array of tax, regulatory, fraud and financial control risks involved in managing accounts payable has accelerated this movement.”
Accenture’s report, “The Future of Fintech and Banking: Digitally disrupted or reimagined?” explored how investment in financial technology has been growing exponentially but the impact on banking players are not well defined. “Existing banks will know they are winning in digital when bank valuations start to factor in the future value of proven innovation, in addition to protecting the core franchise,” the report read.
The report also presents behaviours that enable banks to be digitally savvy, which are to act open, collaborate and invest and this is something we can expect to occur in 2016. “Open innovation is at the heart of the digital revolution, exemplified by the open source movement that has supported so much of the new technology development in recent years. For large organisations this translates as a process of engaging with external technology solutions, knowledge capital and resources early on in an innovation process.”
Evidence of this can be found in the vast number of banks that experimented with blockchain last year and this is the most open approach to innovation that has been seen in recent times from the traditional sector, due to the scandal that surrounds the cryptocurrency bitcoin. Accenture put across the idea that it is early days for digital currencies and it is unclear of what impact adoption will make on the industry.
“However, it is clear that if established players are going to benefit from this revolutionary approach to finance, they will have to engage with a much wider range of technical specialists and developers outside their own organisations,” the report said. CEO of Earthport, Hank Uberoi, shares this view: “Today’s bank is no longer competing with other major banks – it’s competing with telecoms giants and scrappy fintech startups alike, and needs to look at how consumer and business adoption is driving change, then react to it.”
Uberoi’s prediction for this year is more of what we saw in 2015. “I believe 2016 will be continuation of this year’s themes, with a focus on the sharing economy, continued innovation and increased adoption of mobile payments and wallets. When you have global technology players like Apple, Google and Samsung enabling this phenomenon, banks and other payments services brands are likely to form partnerships to develop their own contactless applications.”
He continued to explore opportunities for payments technologies on a cross border scale and how this will put a greater emphasis on tracking and validation techniques. Many banks, like Barclays and Wells Fargo, are currently implementing authentication solutions, or biometric technology to ensure that transactions are made securely and we could see a lot more of this in 2016.
Big data boomed in 2015 and those active within the financial industry believe that data management technology, like blockchain, is set to take off this year as was shown by the UK government’s backing of the technology this week. President of INDATA, David Csiki, mentioned that many are starting to see the benefits of big data and “investment firms can now gain additional insights into their data that they were never able to generate before using the previous technologies that were available. For 2016, big data analytics will continue to expand on the buy side and replace legacy technologies,” Csiki said.
In addition to this, as CEO of Currency Cloud Mike Laven said, the Internet of Things is one of the most exciting results of the digital revolution so far. “The explosion of data will bring new opportunities for smart companies to make use of the insight that all this information can deliver,” Laven said.
Laven continued to describe how although the financial services sector requires businesses to have an understanding of customer habits, tech will take advantage of the data in the right way. “The insurance industry may be a forerunner, taking advantage of technologies such as wearables and telematics to create real-time pricing and policy opportunities in place of traditional predictive analytics models.”
“Fintech is not a march, it’s a movement. 2015 has seen enormous momentum in the sector, leading to impressive company investments, valuations, market momentum, and increased competition. With business booming, it is perhaps not surprising that many commentators are suggesting that we might be teetering dangerously close to a “bubble”, similar to the 1990’s Dot-com bubble in which we saw the catastrophic rise and fall of many internet-based startups.”
Although, Laven pinpoints the difference between the dot-com bubble of the 90s and the emerging fintech firms of this side of the millennium: “Fintech has introduced flexible alternatives to accessing traditional services at rapid speed and reduced cost.” However, due to the legacy status of the traditional banks, they do not need to fear the smarter fintech banking firms. “These global giants of the economy aren’t going to disappear anytime soon. As with any market, only the strongest players will survive beyond the current boom we are experiencing.”