The FinTech revolution has created a great deal of buzz and excitement in recent months. This article considers the moves banks will need to take to stay competitive in the New Year.
As one of the oldest institutions in the world, the traditional finance industry regularly uses its long-standing history as a key proof-point of its credibility. Yet as new technologies rise and the financial landscape continues to evolve at a rate not yet seen before in the industry, the very history that many banks have come to depend on is in many cases proving a barrier to innovation.
Legacy is not enough to keep modern day customers happy and as banks struggle to overcome the technology barriers of their aging systems, now could be the time for banks to open the doors to their younger FinTech counterparts.
Banks and their technology struggles
Recently a number of UK banks have fallen victim to major IT outages. Leaving customers unable to access their accounts, online banking or even cash from ATMs this has understandably led to a number of customers airing their dissatisfaction.
Unfortunately the fallout of such IT failures extends beyond reputation damage. The Financial Conduct Authority is starting to crack down on what it views as 'unacceptable' computer failures and has handed out fines to the tune of tens of millions.
With the rapid growth of online and mobile banking in both developed countries and emerging markets, the needs of customers are becoming increasingly sophisticated.
Moderns customers expect a customised experience when engaging with their banks and the ability to access their accounts where and when they need to. This, coupled with changing regulations to which banks must adhere, makes for a complex challenge to traditional banks.
The major issue is that banks are in many cases relying on decades-old IT infrastructure that cannot cope with the modern challenges of today's banking landscape. Tradition may appeal to some customers, but when this translates to convoluted, out-of-date IT systems built in a pre-Internet, pre-Cloud technology era, this can lead to widespread customer dissatisfaction.
Recognising the growing gap between customers' technology expectations and banks' ability to meet them, a number of FinTech players have shot onto the scene, offering alternative financial services.
Built upon flexible, modern platforms, these technology savvy companies are at a distinct advantage – able to offer innovative services more efficiently, simply and often cheaper than traditional banks.
Old dogs, new tricks
The rise of these newcomers doesn't need to send banks panicking about the challenges involved with overhauling their entire IT infrastructure. This would be a costly and labour-intensive task and with the complex nature of banking IT infrastructure, knowing where to begin would be a challenge in itself. The potential for IT outages would also be dangerously high and banks would run the risk of business damaging disruptions and subsequent fines.
This is where banks can benefit from the flexibility of their nimble FinTech counterparts. Using an Application Programming Interface (API), banks can incorporate the technology from FinTech firms into the key areas in which support is required – simplifying the process of adding innovative technology services by piecing together building blocks of flexible services, much like financial lego.
API is a technology protocol that allows different software components to effectively communicate with one another. A key benefit, aside from avoiding a complete IT overhaul, is that it allows even non-technical users to develop their own applications by using the suitable API that can support it.
By relying on FinTech companies, which specialise in key areas of financial technology, banks can avoid the complex chore of attempting to master all areas of financial technology services. By using an API, developers can build additional applications around its data – allowing for simplified internal innovation.
What's next for banks?
As industry and regulatory changes continue to throw up new challenges to traditional banks, technology demands will only become more sophisticated moving forwards, but relying on tried and tested methods is not an option for banks that want to survive in today's modern landscape.
The dangers of failing to meet customer expectations is more dangerous than ever before, as customers can now easily move to a more appealing alternative - banks need to take action if they are to maintain their loyal customers while drawing in new ones. As such, we are likely to see banks increasingly seeking support from their nimble FinTech counterparts as we move into the New Year.
- Mike Laven is the CEO of Currency Cloud, a rapidly-growing FinTech company that is transforming how businesses move money around the world.