Banks Are Scrambling to Keep up With FinTech

May 31, 2018 - 5 minutes read

When tech disruption occurs, it’s best to join in on the movement, not entrench yourself in old habits or long-standing beliefs. Microsoft learned that the hard way with smartphones. Banks aren’t trying to make that same mistake.

At least, not if they can help it.

Investing in the Future

Banks are implementing blockchain technology, and not just in the form of cryptocurrency. Polish bank PKO Bank BP’s director of innovation, Grzegorz Pawlicki, says, “Blockchain meets the key requirements for durable media, guaranteeing confidentiality and integrity of the documents delivered to clients, which additionally increases the attractiveness of this technology for the banks.”

Sam Tidswell-Norris, principal at NYC-based Motive Partners, explains the panic that banks are feeling: “Banks are finding it hard to earn their cost of capital, and are having to look at new business models. Moving from the model of deposits on file and moving towards SAS models, or annual revenue per user models or click fees like those used by technology companies.” Banks, he says, need to evolve quickly to remain competitive.

Big banks are also taking Millennials more seriously, working to continuously improve customer service and customer empowerment. In a survey, 61% of banks reported that they plan to develop niche products for their customers (this is a huge plus for Millennials too). Meanwhile, 54% of banks surveyed said they want to maintain their products and become an aggregator of third-party services. FinTech startups have done amazingly well by niching down their products to focus on one small aspect of big banking.

Europe’s Open for Business

Regulation, particularly in Europe, is developing more rapidly to accommodate FinTech with the current banking system. Europeans embrace digital methods of access for financial services, and we can’t blame them. FinTech products are often faster, safer, more efficient, and easier to understand than traditional banking offerings.

Tidswell-Norris elaborates, “Given recent regulatory directives, emerging Europe is undoubtedly a burgeoning FinTech hub. Many countries in the region are well developed in terms of their innovation capabilities in the Financial Services sectors, open to new data regulations and open banking initiatives. Taking Poland as a leading example we see a particularly strong banking and payments sector, and institutions … are setting international precedent in their approach and adoption of financial technology.”

Near the top of the list right now is Lithuania, which is “attracting global talent in line with their governmental support and establishment of Europe’s first international blockchain centre,” according to Tidswell-Norris.

Mantas Katinas is managing director at Invest Lithuania. “Lithuania can offer start-ups from non-EU countries access to the European market faster than other EU members,” he says. “The FinTech market is very dynamic, and the players are aggressive, so being the first to implement an idea is an invaluable asset.”

Trust Is Priceless

Tidswell-Norris says, “FinTech is touching people and businesses in all areas and sectors around the world and whilst we encourage change and innovation, it is crucial that we mitigate against the potential for technology to be used as a tool for bad practice.” Third-party FinTech developers could further introduce potential for abuse into the whole ecosystem.

Regulation is expected to be the second biggest problem for banks, after tech disruption. Michele Daryanani is a cybersecurity expert, and he believes politics and regulation are a big threat for FinTech and banks alike. “Legislation is progressing inherently slower than technology – such as cryptocurrencies,” he says.

As FinTech continues to advance without proper and official regulation, trust will be a main factor for consumers when choosing where to buy banking products and services. Tidswell-Norris explains, “[Trust] is becoming a more and more important aspect. Banks used to believe that they had it easy… Nowadays, that trust has shifted, the technology companies have the trust. It is creating an enormous shift, [and] trust is going to be an important factor in the evolution of this industry.”

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