Fintech Innovation Today and Tomorrow

By Madhvi Mavadiya | 19 February 2016

Why did HSBC cancel plans to move out of London? Was it because large financial institutions can be truly innovative in this fintech hub? Is there a long term future for fintech in the UK?

These are the questions that are currently being asked by many within the financial industry and as a result of this reluctance by some banks to coexist with fintech startups, new tech innovation could be suffer. Innovative technologies like peer to peer lending, mobile banking and blockchain allow the human race to excel and move forward by simplifying once tedious tasks; however, some banks see this as a challenge. “Banks are racing to catch up by establishing accelerators to incubate startups, sometimes joining forces to pool expertise, and even patenting their own digital currencies,” according to Bloomberg, which presents the route that traditional players are taking.

In a recent article, Bloomberg quoted a provocative passage from Harvard Business School professor Clayton Christensen’s The Innovator’s Dilemma which epitomised what is occurring in the fintech today. “What’s happening in their world is that it’s becoming more modular. More services can be provided by independents. Little by little, customers will move away from the old and into the new,” the text said, and it poses the question of whether we are at this stage today.

What must be taken into consideration is whether certain technology is worth talking about. Avi Ghosh, head of marketing and communications at SIX Securities Services, highlights how if we were to create a word cloud for the most used terms in the industry in 2015, “blockchain would probably occupy the biggest space. Collateral management and compliance, would, however, still loom large.” Despite blockchain occupying the minds of many financial executives, it questions whether digital ledgers make a dent in the vast realm of fintech. A recent UK government report surveyed the potential for blockchain and London was deemed as the best place to “unlock the full potential of this technology.”

However, The Telegraph reported that as “guardians of the currency”, “central banks put the integrity of the payments system above virtually all else.” What this could mean, again, is that banks would be reluctant to explore digital currency as a legitimate form of payment. This is despite a recent Santander InnoVentures finding that blockchain could save lenders up to $20 billion a year in settlement costs. “For incumbent banks, the main worry is blockchain’s potential for changing the nature of the money system in its entirety, leaving the traditional players with costly legacy systems that nobody wants to use,” according to The Telegraph.

State Street Global Exchange EMEA Head, JR Lowry, believes that as “blockchain, big data and the cloud are all hot topics at the moment, many leading financial institutions are embracing this technology evolution.” Lowry added that it would be inevitable for more financial institutions to adopt blockchain models, “though early implementations are likely to be on a limited scale basis or in “greenfield” areas where legacy migration issues are not a factor.” Another positive outlook about the work banks are doing with blockchain can be found in Innovate Finance’s Sam Hocking’s words, as he explains how bankers, angel investors and venture capitalists have funded fintech startups worldwide in the last two years an amount which totals more than $24 billion.

There’s a fundamental change taking place in banks. They see the unbelievable costs in their technology, and if there are ways to bring them down by working with outside firms, that’s got to be meaningful,” Hocking said. Alongside this, Virtusa global head of banking and financial services, Sameet Gupte advises banks that in 2016, customers will increasingly expect to see “sophisticated digital solutions” and their banks to deliver. “They must support initiatives such as blockchain to enable rapid, cross-border, secure transactions. Fail to do this and traditional banks will see their customers turn to their more dynamic competitors,” Gupte said.

Although blockchain is being spoken about today, it may be a technology for tomorrow. Director of client communications at Linedata, Patricia Regnault Fouqueray explores how banks are active in getting to grips with new tech, but will there be any results? “Banks are already working on how to better leverage the data they have and this trend is set to continue. The cloud is still being approached with caution, as security concerns and control remain paramount. Blockchain is being scrutinised and while we anticipate large-scale commercial applications for this technology, it’s not going to be in the immediate future,” Fouqueray said.

Increased innovation does not mean that banks can control how startups, or newer financial institutions, like challenger banks progress. This year’s World Economic Forum saw CEO of Deutsche Bank, John Cryan unequivocally state that “cash I think in ten years’ time probably won’t exist.” Although this has been the attitude taken by some, it was interesting to hear from the leader of one of the big five and for reasons discussed above: cash is not cost effective. Barclaycard business, The Logic Group’s product manager Andy Mellor agrees with this idea and sees “wallet providers and wearable technologies driving greater adoption of contactless and mobile payments.”

CEO of Bank of America Brian Moynihan also made some poignant comments at this year’s WEF: “The intimacy and distributed power of a smartphone in the hands of a person is so different than anything we’ve faced in our business careers,” and this is something that many banking professionals are facing at present. It could be said that innovation is taking over and all banks can do is to brace themselves and embrace it. MarkLogic’s CTO of financial services, Rupert Brown, provides age-old advice on how to prepare for new technology disrupting the traditional sectors.

As the old saying goes, knowledge is power. Companies must be in control of their information and know what they need to know to make their business successful.”

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