The ‘Fintech Challenge’: Technology's a game, and you've just got to play it

By Lee Cameron | 20 July 2016

Much has been said of the changes banks are facing - branch numbers are falling, consumers are increasingly entrusting their money to innovative fintech businesses, and the Payment Services Directive 2 is expected to further level the playing field between banks and new market entrants. 

Of course, the legacy technology systems that banks are lumbered with are a much-debated barrier to innovation. Combined with the incredible levels of compliance and regulation banks grapple with every day, it's unsurprising that according to PwC, 95 per cent of traditional banks think they are in danger of losing part of their business to fintech companies. And yet the PwC report also tells us that despite this, a quarter of banks questioned said they simply do not engage with fintech businesses – despite them potentially holding the key to the elusive innovation that customers are increasingly tempted by.

But what if, actually, banks do have the capability to simply raise their technology game by adapting their culture? And, at the same time, to incorporate fintech services into their offering to customers? Just what are the more cultural changes banks can make that will have a significant impact on their ability to level up in the digital ‘Fintech Challenge’?

Level up to change

Banks have long been home to the industry’s brightest and most ambitious minds. But there is no doubt that these days we are seeing a talent transfer, in which innovative start-ups are the top pick for many young graduates entering the workplace. Unsurprisingly, the technologically talented see tech businesses as places to really stretch their skills, whereas banks and other legacy corporates have a more traditional reputation. What’s more, the Facebook ‘move fast, break things’ motto is one that really resonates with the new generation of employees, who are eager for the opportunity to try out their ideas. Take a business like TransferWise, which can likely implement a new product idea in beta in a matter of days. If it is popular, the team will develop it further. If it isn’t, well, no harm done.  This approach is simply alien to those familiar with working in a banking environment – and so it should be!

Banks are rightly highly regulated, and this necessarily slows down change. But how can they make their environment one in which highly talented and ambitious individuals can thrive – and ultimately bridge the growing innovation gap between themselves and fintechs?

The good news for banks is that these smart, technologically genius individuals already work for them. At Goldman Sachs technology engineers make up roughly one-third of the workforce, which is representative of how much even the oldest of banking institutions value technology.

This is why I believe the key to tackling the ‘Fintech Challenge’ is to empower the IT teams within banks. By sharing responsibility for innovation with those who know what is technologically possible, banks can empower their smartest minds to drive change. This will require a real transfer of power – one in which IT teams can make recommendations which are respected and considered at the highest levels of an organisation.

Agility – energy to jump through hoops

In the ‘Fintech Challenge’, jumping through hoops is key. This is why banks need to be considering how technology businesses encourage agility, and then look to adopt similar attitudes in their own organisations.

One option is to consider a ‘separate but together’ IT structure. This will allow banks to fulfil their regulatory and compliance obligations on the one hand while enabling smaller teams to innovate, create, make, and break digitally interesting ideas on the other. Amazon is a well-documented example of a business that builds internal workgroups, made up of individuals from different teams, and tasks them with tackling a particular problem. But then – crucially – sets about implementing the subsequent recommendation, rather than abandoning it in the cupboard marked ‘Too Difficult’. An approach that is integrated into the core systems but decoupled from the legacy processes would also allow banks the headspace to consider practical and efficient ways in which they can engage with fintechs in order to benefit the customer.

Alternatively, let’s start by making smaller changes. By empowering each employee to fix small problems immediately – rather than always pushing them up or down the chain of command – banks can encourage agility throughout the organisation. Employees and customers alike are tech literate and want to be empowered by tech. Despite institutional restrictions, clients and employees are both demanding the personalised and efficient services that fintechs can offer.

Collect gold stars

Of course, changing the culture and encouraging digital innovation gets an organisation so far in the ‘Fintech Challenge’, but at some point you will need to start collecting gold stars. In other words, banks need to be bringing in new technology talent – and they need to be bringing these people in at high levels throughout the business. For one thing, the technology community talks, particularly within the big hubs. So hiring a star technologist into a senior position in a bank will get people talking and move a bank’s reputation into the realms of potential innovator.

What’s more, let’s not disregard the vital importance of fresh talent, a new pair of eyes, and a change of attitude in shaking up traditional boardroom mentalities. Let us not forget that generations of senior bankers have been trained to analyse and avoid risk and failure – so it is hardly surprising that there will be resistance internally to the Silicon Valley mantra of ‘failing forward’.

Multiplayer – play in multi-player mode

Finally, every game has a multi-player mode, and that’s no different for the ‘Fintech Challenge’. If collaborating with smaller fintech businesses is not yet possible, banks should consider how they can work with other third parties. External expertise is a good way of testing the water in a compliant way, without running the risk of purely recycling DNA within the bank.

Banks need to be highly-regulated, compliant, and secure organisations, and this should not and cannot change in the face of fintech competition. But as technology matures, so must organisations, and this starts with the culture. There are ways in which banks can encourage and develop innovative minds, which in turn will drive digital transformation. No one said the ‘Fintech Challenge’ was an easy one, but it is a game the banks are well-positioned to take on.

By Lee Cameron, CEO, Monitise. 

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