This is a guest post by Mariela Atanassova, and you can save 20% on a Finovate registration (February 11-12) by entering 'FSClub2014' as your promo code when you register, and save 50% on the Bank Innovator's Council meeting (February 13) by entering 'FSC' as a promo code on registration.
During the Future of Money session at Sibos we looked at the bank as assembly of best of breed products and services, and suggested this was one of the possible ways in which the financial institutions can adapt their business model to deal with the disruptions in the industry.
With the 4th Finovate Europe just around the corner, we have to wonder why is this shift away from monolithic solutions not happening naturally and faster?
- The FinTech sector is growing at an exponential rate. For example, in the US, there was about 2 Bln USD of investments in FinTech for the period 2008-2012 (5 years), while in 2013, investments in this sector amounted to $1 billion.
- Even though the term FinTech was used in as early as 2005, it became a buzzword in VC circles in silicon valley in 2012, and the rest of the world only last year!
- There are more and more incubators and accelerators being setup in the UK, and some of the biggest banks have launched their own.
So with such proliferation of innovation going on, you would expect that the pace at which banks are moving towards becoming an orchestrator that assembles all of these solutions into new products and services would have picked up. Instead a parallel eco system seems to be springing to life, where players outside of the finical industry are taking advantage of all the great ideas.
There are 3 (at least ) reasons for this phenomenon: one psychological (solution bias), the second business (competitive advantage) and the third technological (integration with legacy).
First, the solution bias is a limitation of our reasoning and is not specific to banking; when solving problems our pattern seeking brains naturally look for an exact fit between a problem and a solution, and discard anything that is the “wrong” shape. But, often, new ideas are small, fragmented. A single idea very rarely will address a problem that a banker faces – exactly. Several ideas need to be combined, enriched and developed further to create a real fit.
Especially because bankers would look at a problem from a global point of view that involves their current processes, while the entrepreneurs develop ideas from the point of view of the end customer and his pain points. On top of that there are so many ideas that look nearly the same that it’s hard to even understand which ones may be better suited.
So a banker attending an start-up pitching event has to do an enormous amount of work translating the pitches they hear into pieces of a puzzle that has to end being the right shape to solve a very real practical problem they have &without any guidance on which pieces fit and which are from a different puzzle all together.
Second, the second reason which we explored somewhat at Sibos too has to do with what banks perceive to be competitive space and what is not. Many obligatory parts of banking were designed to lock in customers (such as bank accounts), when banks competed with other banks. Now however outsiders are challenging the right way to do things. So banks need to re-examine their understanding of how and where they compete, the same way telcos a few years back had to change their perception of phone numbers being a customer lock in mechanism and agree on number mobility.
There are some examples of similar initiatives taking place in the banking sector such as the OpenHBCI project in Germany (http://openhbci.sourceforge.net), which developed a set of libraries for banks to implement their home bank applications in a standardised and highly interoperable way.
The third problem is the fact that today it is very difficult for a bank to adopt an idea coming from a start-up and integrate it in their own infrastructure and processes (this is sometimes so difficult that it is easier for them to develop their own copy-cat solutions). Integration of new and older technologies, vetting and security, and testing for fit and adoption uptake are so cumbersome that IT departments cringe when asked to assess the impact of acquiring a bright new idea.
A fairly new initiative that attempts to create a “universal plug” – integration platform between start-ups and banks, which removes the friction between new and legacy technologies – is the OpenBank project.
In any case, collaboration seems to be a key ingredient in enabling banks to compete effectively in this new environment of innovation and agile outsiders.
So building on this and the great community that gathers at Finovate, we (Bank Innovators Council) have decided to explore and validate these 3 points in a workshop, which will take place immediately after Finovate.
Focusing on the customer touch points in banking and the disruptions that are causing disengagement and switching we will explore:
- What are the problems in this area as banks see them
- What parts of these can be addressed by ready-made solutions, some of them presented at Finovate; where these solutions fall short
- What are the barriers to adopting these. How can they be addressed in a systemic way. What would an infrastructural solution look like
This is a guest post by Mariela Atanassova, and you can save 20% on a Finovate registration by entering 'FSClub2014' as your promo code when you register, and save 50% on the Bank Innovator's Council meeting by entering 'FSC' as you promo code on registration.