By Katharine Wooller, managing director, UK and Eire, Dacxi
The UK fintech is rightfully regarded with envy as the zenith of technical innovation in the sector worldwide. Aided in no small way by a sympathetic regulatory environment that no longer eyes fintech with suspicion, rather as a necessary evolution. Banks, quite sensibly, now seek to foster innovation by supporting start-up ideas with resources via incubation projects in return for first refusal on the resulting technology.
Customer demand, however, evolves quickly and this gives me reason to believe that where fintech businesses are flourishing, traditional banks are failing to keep up with the level of expectation that these customers are looking for. To their detriment, traditional financial services have been slow to adapt to a fast-changing retail environment, as the pace of innovation has been glacial, hobbled by red tape.
Unsurprisingly, agile fintech businesses have sprung up, keen to take advantage of exploiting the zeitgeist. As the millennials come of age, and more importantly wealth, the previous generations brand loyalty is thrown out of the window. Indeed, they are more likely to access digital services and inherently trust in new technologies.
With so many of these fintech platforms to choose from, we can only marvel at the perfect storm of open banking, the seemingly unstoppable rise of big data, the ability of social media to grow leviathan brands almost overnight, automated KYC legitimising pure digital propositions, an increasing skilled UK tech workforce, and government funding for fintech innovation.
In my view, this disruption of traditional banking is akin to an unstoppable juggernaut! Fintech has held banks to account, by giving the consumer an alternative. Today's consumer now demands better service, more accessibility, modern technology, copious buying choices, and competitive fee structures, in all our interactions. By "eating the lunch" of the traditional banks, fintechs have issued the ultimatum: adapt or fail.
They've done this because they've raced ahead when it comes to offering innovative banking. Moreover, those who have had the misfortune of providing cutting edge technology to large banks, the buying cycle alone can take up to 18 months, assuming you have leaders sympathetic to substantial tech upgrades. Then of course you have to factor what is normally a broader change management program, and the time for integration. Thus, a relatively small fintech can sprint to create industry-wide change before a bank has allowed their managers to tie their shoelaces and issue an RfI!
Historically, banks offer tradition, history and legacy, although many believe they have become behemoths, more interested in globalisation than sticking to their traditional core values, banking origins and principals. Conversely, the fintech community are relatively new by comparison, but the signs are they offer a more efficient and much better perspective to banking and financial services fit for purpose for the 2020s.
The post-war 'baby boomer' generation will continue to access the "traditional" brands and products. GenX and the proceeding cohorts will take a "pick and mix" attitude to the financial products and methods of interacting. The more interesting question is how some of the leviathan FS/IB brands manage to adapt to increasing complexity of requirements and subtlety of consumer segmentation whilst remaining competitive.
Fintech and traditional financial services have a somewhat fractious relationship; essentially modern technologies are eating their lunch, so there is a feeling of evolve or see another great brand wither to nothingness. Great work is being done in fintech incubators sponsored by banks, where they work hand in glove to foster innovation. It is cheering to see regular acquisition/investment in UK fintech scene by mainstream banks, and you cannot underestimate how much "white labelling" of niche technologies goes on under the radar.
Long gone are the days where a bank can rely on the lifelong loyalty of a customer. Today's consumer now demands better service, more accessibility, modern technology, copious buying choices, and competitive fee structures, in all our interactions. Moreover, in the younger generations, there is a pervading feeling that the current financial infrastructure is not fit for purpose. It remains to be seen what trends dominate catalysed by the once-in-a-generation event that has been coronavirus.
In conclusion, one hopes they can learn from each other and equally positively impact the industry.
Fintech fosters: a speed of innovation, the ability to fail hard and fast, the joy of unblinkered thinking, optimism for the future. Banks, for their part, can provide a supportive environment for modernisation, lobbying of government, development of a skilled workforce, and, most importantly the investment for true innovation to thrive.
Frankly, one industry cannot exist without the other.