It is rumored that the word ‘fintech’ was first used by the Sunday Times in 1985. That case is almost certainly an outlier but since 2013, ‘fintech’ has been hard to escape.
And with it comes the implication that banks are somehow lagging behind agile newcomers in financial technology innovation. Traditionally, the banks’ key strength that set them apart from fintech competitors was trust. Who else would consumers trust to securely manage their money? This gave them an edge that meant they could retain their customers through the long-established relationships that had been set in place.
However, that was before the ‘cool factor’ took hold.
Now, with tech innovators like Apple and Samsung making fintech desirable to consumers, the focus has changed. Now consumers are less interested in trust and security, and more drawn to companies that provide them with innovative, convenient and user-friendly payment services. Today, innovation as a payment strategy is allowing consumers to use different payment methods anywhere and anytime and to feel ‘on trend’ while they are doing it.
For the banks, regulatory changes now mean that unless they are able to step up to the plate and deliver the types of state-of-the-art, original and end-user friendly mobile payment services consumers now crave, they run the risk of completely losing out on this lucrative market.
So let's stop making excuses. Banks have many strengths, including one big one – scale. Approximately 90% of fintech startups fail because they run out of funding. One app is unlikely to put a bank out of business.
Another is data – banks are drowning in data. It’s time to start using it. Risk culture doesn’t mean that banks do nothing – it means they can take informed decisions about innovation and security outcomes. It IS possible to work with the supply chain to bring to market highly secure products that are not only ahead of the curve, but which also tick all of the necessary compliance boxes and adhere to regulatory standards.
Advances in technology like host card emulation (HCE) are making it easier than ever before for banks to truly innovate. Banks need to innovate. You’ve heard this before. It is one of the biggest topics of conversation at banking and payments events worldwide and it’s all over Twitter.
Invariably, this is followed by a slew of excuses why it isn’t happening. Regulation, silos, hierarchical structures, fast moving technology versus a conservative and slow moving culture, a corporate emphasis on risk and the need to maintain the highest levels of security….
I’d like to suggest that it’s time to turn the excuses on their heads.
For a start, banks are innovating and have been for quite some time. Some of them that is. Even as far back as 2012 Forrester was pointing at BBVA as an excellent example of an innovative bank, with its new online money management product, its next generation ATMs, its mobile cash functionality and more. Barclays was also ahead of the game with Pingit.
Other banks are funding fintech accelerators with a view to getting first bite at the innovations they provide.
It’s easier for banks to innovate than ever before and to do so without compromising security and compliance. And often all it takes is a bit of education and some dialogue with the supply chain. There are many sources of learning for banks. Innovative suppliers, other banks, other industries, even regulation itself.
Indeed, regulation shouldn’t be viewed as a reason not to change, it should be seen as roadmap. Look at PSD2. That wasn’t sprung on the banking industry. Regulation is a slow moving process and smart innovators know how to make the most of it.
Let’s remember what regulation is for. It’s fundamentally about protecting the customer and as the rate of technical progress speeds up, it’s easier than ever before for customers to vote with their feet.
Amru Kotb is senior vice president and managing director of Cryptomathic GmbH, an Aarhus, Denmark-based technology company.
