Innovation paves the way for the future of fintech

By Benjamin Ross, Director, International Marketing.

The financial services industry is experiencing disruption at an unprecedented speed. Consumers are expressing a growing desire to access financial services through easy-to-use digital channels.

Benjamin Ross
Benjamin Ross

In response, a wave of new fintech start-ups have brought innovative products and alternatives to long-established banking services, resulting in a diverse ecosystem of traditional and non-traditional players.

The benefits of emerging technology has never been greater, yet large traditional banks are still struggling with the complexity of legacy systems and tools that prevent them from innovating at the speed and scale of challenger brands.

Roadblock to innovation

The move towards digital space means banks and financial institutions alike need to better handle their data in order to anticipate the needs of customers, make banking easier, and pursue the right partnerships to increase capabilities and scale.

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Data growth is growing exponentially and traditional banks are struggling to keep up. IDC predicts that by 2025, global data will grow to be ten times that of today. Not only is it growing in size – driven by the worldwide explosion in mobile and new innovations like machine learning, VR and the Internet of Things – but also in complexity due to the proliferation of open source and cloud platforms becoming commonplace in fintech.

These vast volumes of data can be worthless, however, if not harnessed correctly or quickly.

Achieving the velocity of innovation demanded by the digital economy is no mean feat and traditional banks must redefine how they leverage data in order to thrive in today’s competitive landscape, or they risk falling behind.

So how can the incumbents grow their business in the years to come?

The potential of partnerships

Many banks have already entered into partnerships with fintech companies. The relatively low cost and fast access to cloud environments have allowed hundreds of challenger banks and non-financial companies to quickly bring banking solutions to market. Take for example FreeAgent, the fintech startup that partnered with RBS to provide online cloud software to its customers or Uber’s full-service banking app for drivers.

For heavily-regulated incumbent banks, collaborating across fintech ecosystems while complying with data privacy regulations can be a daunting task. The upcoming PSD2 compliance regulation brings significant change to the banking industry. It provides traditional banks the opportunity to modernise from the more open banking system and failure to adapt can leave these traditional banks to be seriously left behind.

Fintech start-ups focus on developing innovative, customer-oriented solutions that include a variety of services, including payments, peer-to-peer lending and trading and mobile banking among many others. They bring disruptive technology solutions to the ecosystem while established banks provide market expertise and a customer base. As a result, the collaboration can strengthen the competitive position of established banks by shortening the time it takes for new products and services to reach customers, while the start-ups benefit from greater access to market expertise.

Speed and security

In order for fintech and traditional banking to collaborate and build mutually beneficial partnerships, all members of the ecosystem need a way to share data for developing and testing innovative applications in a fast, secure manner.

Take, for instance, a commercial bank that wanted to better compete with technology-centric companies, including Apple. In order to gain a competitive edge, the bank needed to migrate application development and testing from a 15-year-old legacy system to a hybrid-cloud environment that included AWS. They needed to adopt a dynamic data platform that allows its software development teams to virtualise data and mask sensitive information, working in tandem with DevOps tools, to achieve cloud agility and easily share data for development and testing. They also needed to be able to share this information easily and securely with their partner ecosystem, including fintech software developers, credit providers, and payment processors.

But as enterprises strive to store and process greater volumes of data across multiple data platforms and multiple locations – both on-premises and in the cloud – the complexities of data management and data security increase.

Approaching data management 

Most banks will need to aggressively adopt new technology paradigms of digitally native companies, and this is certainly true when it comes to data.

DataOps, which is the rapid, automated, and secure management of data, can enable banks and financial services organisations to collect, virtualise, manage, and provision terabytes of data on-demand. While DataOps was only introduced to the Gartner Hype Cycle last year, the trend is moving fast as more global enterprises look to significantly increase investment in DataOps technologies.

This modern approach reduces the complexity of data provisioning and empowers developers with self-service access to data, accelerating the development of data-driven applications and decision-making to meet the rapidly changing requirements of the business.

Because not only is the use of legacy technology and processes slowing banks down, but outdated IT systems can pose a significant security challenge, especially if the software is no longer supported by the vendor. The onus is on the bank to fix security holes, and this is a huge burden on the business as cyber threats advance faster than security teams’ ability to detect and resolve issues. Meeting regulatory requirements, such as the GDPR and CCPA, also require that the technology be supported or face fees and penalties if you experience a data breach and your software is out of compliance.

The new wave of the fintech ecosystem

In other words, as your business grows, you’ll need to evolve your technology stack because your software must be able to keep up without inhibiting business scalability, growth, and regulatory compliance.

Offering traditional financial services is no longer an option in this technologically advanced landscape. The customer expects digital capabilities so keeping up with industry trends and customer needs has become imperative for a successful business.

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