Why don’t we just call banks „fintechs” already?

Over the last two decades banks have been some of the largest consumers of IT services, both internally and externally sourced. According to this IDC report in 2018 alone the financial services firms spent $440 billion on IT, with over half made up by banks. This number is only growing and expected to reach nearly half a trillion within next 2 years.

So how is it that for years banks and other financial institutions have been investing heavily into financial technology - and we rarely speak of banks as financial technology providers? Especially that they certainly want us to think that way, with many bank’s CEOs declaring they are becoming (or are already) “technology companies with banking license”.

There are actually valid reasons behind it. Banks don’t innovate that much in terms of financial technology, usually because they are simply not set up for that — being too big, too slow and too regulated. Three quarters of their spendings is eaten up by maintenance of existing systems, whereas only about one fourth goes to new projects. Also, banks have been mostly investing into their internal systems, not the client-facing ones.

What fintech startups are good at, and what actually positions them in polarity to traditional finance institutions, is usage of technology mainly in the customer-centric context. Technology is often at the core of their offering, yet it always is just an enabler for what is their best asset and advantage: outstanding customer experience. Bringing focus directly on CX is at the core of fintech disruption and it actually resembles what is currently happening in many other disrupted industries. What Uber changed mostly is not making the commuting cheaper, but providing an extremely convenient service — and making traditional providers follow up and adapt. Simplifying, this is the same dynamic as between incumbent banks and fintech startups.

In order to catch up with fintech’s offering banks need to revamp how they interact with their client. New challengers have the leverage of starting fresh and being digitally native, but for incumbents it’s pretty hard of course, mostly due to regulation and all the legacy they are dragging behind. Fortunately, the banks are aware of that and we can see among our clients they are working on it already. And we are there to help, providing the agility their organization lack so much.

Are you a bank and could use some assistance with your Digital Transformation projects? Check our EFI4 Digital Banking Platform and drop us a line.