The biggest hurdle to financial institution future-proofing

The biggest hurdle to financial institution future-proofing

FinovateFall 2018 wrapped up in late September, and it was fantastic to see so many innovators and thought-leaders in the same room.

There were a lot of potential story lines to write about, but the one that I found most fascinating culminated in a live Breaking Banks taping from stage, where I had the pleasure of chatting with Jim Marous, JP Nicols, and Brett King about the challenges facing fintechs and banks as they continue to push the fintech landscape forward. The full podcast is worth a listen, but one of my biggest takeaways from the discussion centered around what I perceive to be the biggest hurdle right now to fintech innovation and implementation at financial institutions: a corporate culture that prioritises the short-term over long-term future-proofing.

In my previous article, I talked about “$2 bill fintech”, which are fintech solutions that are legal, functional, but struggle to gain wider adoption because they are outside the norm of what the average person expects. That article focused on how end-users contribute heavily to this phenomenon (consumer behavior in the banking space is notoriously difficult to change), but you also see this play out in the way that established financial institutions engage with technology. The excitement of being able to update a tired, inefficient process, offer a new product, or engage customers in a new way frequently gives way to the institutional lethargy of continuing to do things the way they have always been done.

This lethargy can come from a variety of sources, but as fintech continues to evolve, the list of excuses for failing to engage gets shorter and shorter. After watching early fintech companies struggle to gain traction with financial institutions, innovators are prioritising the accessibility of their products to make them easy to adopt through flexible coding and APIs. On top of that, a new class of fintechs is emerging that offers implementation as a service, making it easier for banks and financial organisations of all sizes to bring new, innovative solutions into their technology stack. It’s never been easier (or cheaper) to bring the fintech you want into your organisation.

While fintechs are making strong strides towards making their products more accessible, end-users are also increasingly comfortable bringing more tech into their banking relationship. The idea of using a phone to move money between your friends or complete an in-person purchase at a retailer is no longer as scary as it used to be, for example.

And banking customers are also demanding more from their online banking experience. They expect their bank’s web page to offer personalised functionality like the other websites they do business with, which increasingly offer a unique, tailored experience based on a user’s purchase history, demographic information, and so on.

There are undoubtedly consumers who are still hesitant to engage with technology in a banking capacity, but the winds are shifting, and they are shifting quickly – adoption of new technologies happens spreads like wildfire once the momentum gets going.

With fintechs making it easier and cheaper to implement their products, and end users becoming more comfortable with (and starting to demand more) high-tech banking solutions, it’s no surprise that we’re starting to see some significant movement from some of the large players in the space.

What is surprising is that there are still a huge number of financial institutions who are resistant to the changes that are revolutionising their industry. I understand that the pressure to constantly deliver positive results to shareholders can be massive, and that it can be difficult to find the resources in the short term to tackle some of the big challenges that innovation will undoubtedly present.

But on the flip side, banks are more exposed and more vulnerable to serious competition than they have been at any point in my lifetime.

The long-term future of every financial institution will depend on how far ahead they’re able (willing?) to look, and how quickly they can break out of the institutional lethargy that encompasses a large part of the market right now. Banks that don’t start taking concrete steps to bring new tech platforms into their offerings will increasingly find it more difficult to catch up. Break out of the institutional cycle now or risk falling irrevocably behind.

This article is also featured in the November 2018 issue of the Banking Technology magazine.
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