The fintech sector is often characterized as a battle between old and new. But it’s worth noting that the flood of new money going into the space (global investment in fintech ventures tripled to $21.21 billion in 2014) is distributed across both parts. What is of concern is that established financial services players are not doing enough to keep up with this surge in new innovation investment.
A recent survey of senior industry executives involved in the FinTech Innovation Lab reveals that 72 percent feel their bank has only a fragmented or opportunistic strategy to dealing with digital innovation. Respondents reported issues with:
- Legacy technology and the difficulty of deploying new technology fast. All of the respondents felt that legacy technology presented an issue to their organization, but only just over half said their bank had a strategic approach to decommissioning this old technology.
- The speed at which banks implement new technology. The overwhelming majority agreed that new technology deployment cycles will be much quicker in the future. However, 40 percent of respondents felt that the current time taken for their organization to deploy new technology was either negatively affecting its value or providing no net benefit at all.
- Skills and culture. Four out of five respondents felt that when it came to culture and talent, they were only “somewhat” or “minimally” equipped for the digital age. Only half felt that their procurement processes and technology were up to scratch.
It’s uncertain how established financial services firms will rise to these challenges, but the following two scenarios provide a structure for how things might play out.
Scenario 1: Digitally disrupted
Caught in the headlights of regulation and cost reduction, the bank loses out to new players that provide more effective financial products and services attuned to the digital age. The bank continues with a product-based sales approach rather than improving the customer experience and as a result lacks the motivation to deal with legacy applications. Banks in this scenario compete for a diminishing share of wallet as their brands are relegated in customers’ eyes to that of commodity utilities. They continue to believe in the impregnable nature of their business model and that fast-following strategies will remain the most successful.
Scenario 2: Digitally reimagined
Innovations are embraced at the business model level. The focus is on making a customer’s life easier rather than on asset monopolies. Sources of revenue change over time as customer insight grows and the bank learns how to use collaboration with adjacent business models to surprise and delight customers. Banks in this category see themselves as having short-term advantages in infrastructure and customer data, but no long-term right to exist without converting this into services that solve emerging digital consumer frustrations.
When Accenture started its journey with the FinTech Innovation Lab in NYC in 2010, no bank we spoke with believed Scenario 1 could happen to them. The overriding belief was that providing sustainable banking services or sub-services was too complex, risky and regulated for new players to threaten the existing players. Few banks now feel that the outcome of digital is so clear. However, it is important to realize that there is no reason to believe either scenario will apply to all banks—banks still hold the power to control their own destiny.
In our next post, we’ll reveal three behaviors enabling banks to be digital winners.
In the meantime, to learn more, read The Future of Fintech and Banking: Digitally Disrupted or Reimagined?