Why aren’t banks cashing in on FinTech?
As Founder and CEO of a FinTech, or to be more accurate, a RegTech company, you might not be terribly shocked to hear me say that I think banks should be investing in start-up companies like ours.
But the thing is… I’m not the only one saying it.
The Boston Consulting Group recently announced that investment banks are barely investing in FinTech companies, even though it could dramatically lower their costs.
And the potential savings aren’t only in capital market activities. Bain & Co estimate that governance, risk and compliance now account for 15–20 per cent of total ‘run the bank’ costs. So with the price of compliance rising every year, why aren’t more banks beating down the doors of RegTech companies who can deliver major efficiencies?
The answer is multi-stranded and complex, but here are a few reasons that I believe make a big difference.
Navigating stormy seas
Someone once told me that the bank they worked for was like a ‘huge ocean liner’. Hugely capable and powerful, but very difficult to steer or change direction.
The bank was frantically trying to transform into more of a sports yacht. Nimble, agile and able to change speed and direction with minimal effort — crucial in these changing times. Needless to say, it wasn’t an easy task.
Anyone working in a large firm knows that even implementing the smallest of changes (technological or otherwise) burns time, money and resources.
But when the cost savings case is so compelling, this still doesn’t explain the FinTech inertia we’re seeing.
Back to the board
It could be compounded by a worrying lack of tech experience at board level. According to Accenture, only six per cent of board members and three per cent of CEOs at the world’s largest banks have technology backgrounds.
Their report, Bridging the Technology Gap in Financial Services Boardrooms, makes for alarming reading. As author Richard Lumb says: “Fintech, cyber-security, IT resilience and technology implications of regulatory changes have all become critical board-level issues, but many bank boards simply don’t have adequate expertise to assess these issues and make decisions about strategy, investment and how to best allocate technology resources.”
And when you consider that 75 per cent of all bank IT spend in 2014 went on propping up old IT systems (according to Celent), it’s easy to see why investing in innovative new systems is falling off the priorities list.
Competitive advantage
So while it’s entirely understandable that these opportunities are being missed, it’s also clear that the market won’t be as forgiving to those who get left behind.
The fact that so few companies are investing in FinTech means that those who do, will create an even bigger advantage over those who don’t.
(This article was first published by BBA Insight on October 31 2016.)
