As banks look to the future, it's not enough to focus on expansion and sophistication – they need innovation. Instead, lenders will need to innovate the bank of the future and let the building follow. This will require financial institutions to partner with the right fintech firms.
Despite spending billions to build and implement cutting-edge financial software and hardware, concerns about intellectual property rights, cybersecurity, and procurement have stymied the partnerships between banks and fintech firms, noted Financial News London. This has caused innovation at banks to stagnate.
New research from international law firm Simmons & Simmons sheds some light on why innovation strategies at large financial institutions haven't been as robust and rapid as they need to be. The firm survey 200 senior level respondents, with 30 percent C Suite executives, from five financial centers to learn more about why most large financial institutions are struggling to maintain rapid innovation.
According to this survey, roughly 33 percent of respondents had plans to partner with a fintech firm in the next 18 months. Of the remaining two-thirds, respondents said they were not going to partner with a fintech firm for the following reasons:
- 55 percent said they were building in-house systems.
- 53 percent said the institutional preference to own the IP has hindered partnerships with fintech firms.
- 45 percent said regulatory risk played a big role in avoiding innovation.
However, the biggest reason banks didn't want to partner with fintech firms was cybersecurity, which 71 percent of respondents cited as the biggest risk. These three-quarters of respondents have legitimate concerns about the threat posed by cybercriminals and hackers, but that shouldn't stop them from partnering with fintech firms to boost innovation.
"Despite the huge focus on innovation in the sector over the last few years, there is no doubt that many financial institutions have struggled to move fast enough," explained Angus McLean, head of fintech at Simmons & Simmons. "We are now at a critical time for the industry, as we begin to see which strategies are paying off and which are failing."
Financial institutions are currently standing on the precipice of significant changes in the banking sector, and executives must either leap toward the bank of the future or remain standing on the edge, unable and unwilling to innovate. However, it can be tricky for financial institutions to be trailblazing innovators while simultaneously remaining compliant with regulations.
Partnering with the right fintech firms
Now more than ever, it's urgent that banks begin taking steps to outline their innovative strategies and implement fintech solutions. However, the 12- to 18-month time period it takes to fully launch a new fintech system has left many banks less focused on innovation, as their priorities remain whatever has a revenue implication for the current quarter or year. Financial institutions taking steps to leverage fintech – and any bank serious about remaining relevant in five or 10 years should be doing so – must partner with the right firms to obtain the level of technological innovation they need for their growth strategies.
With so many types of banking innovation underway, it's important that banks draft a detailed strategy that outlines which of the myriad new technological capabilities they want, since not all fintech options will be the right fit for different financial institutions.
As noted by The Finanser, some of the more popular banking innovations include:
- Talking transactions.
- Distributed payments.
- The Banking of Things.
- Robotic services.
- Social value chain.
- Data monetization.
Each of these innovations comes with different benefits, and while some banks might want to focus on enhancing the customer experience by implementing talking transactions, leaders at another financial institution might want to focus on developing distributed payment technology, such as contactless bracelets or biometric trackers. In some instances, banks may instead opt to truly push the boundaries and innovate a feature that doesn't yet exist.
With a variety of routes to choose from, and each one likely to impact the financial institution in its own particular fashion, banking leaders must ensure they strategize wisely over which direction they want to take their organizations. Once a strategy has been crafted, it's time to seek out the right partner that will deliver the fintech banking solution necessary to innovate the bank of the future.