Banks and Fintech, What’s the Problem?

Ostia blog FinTech

Banks are falling over themselves to embrace the ‘digital revolution’ with innovation centres, very ambitious ‘digital strategies’, very nice marketing videos and so on. What is quite incredible is that there are many ways to skin this particular cat with so many innovative and clever solutions to help the banks, one would have thought this is a ‘no brainer’… what is preventing the banks from powering ahead and implementing this?

A key strategist from a large Nordic bank he made a number of key observations:

    • That a large percentages of the IT budget is spent on keeping systems running with a small percentage spent on new initiatives.
    • He estimated that 10% of their IT budget was spent on systems that no one was sure were still in use but everyone was afraid to turn them off.
    • When selling to the banks, do not approach IT directly. They do not have budget as budget is only given to them by the business.
    • Out of a wish list of three, one was to be able to move off the legacy and embrace the new.
    • The last point is interesting as it is our view that these legacy systems are fit for purpose but the processes that have built up around them are the problem. With the right approach, they can be just as agile and better performing then some of their so called more modern technologies.

Why are banking organisations slow to move forward ?

There are a number of reasons and it all comes back down to ‘people’. All of the power (=budget) has been taken from IT departments so there is a fear factor from cost cutting, outsourcing etc. Everyone asks when a system is running well, why do we have all of these people and what do they do ?

Essentially the reason the systems do run so well is because of the job the people are doing with preventative maintenance, knowledge built up over many years and plain common sense. This simply cannot be replaced with a cost equation by outsourcing to cheaper bodies.

Removing the fear factor

Essentially good IT people with valuable insights are being hounded to the point where they want to simply keep their jobs and not rock the boat.

Accordingly, they will never innovate or take on change easily as they are not respected for what they do now and thus can’t countenance what might happen if they were to take on some of this ‘new stuff’.

This has led to a fear factor within IT organisations where people want to hang onto their jobs. This in turn leads to obstacles being raised every time a new initiative is proposed. What if it impacts on production ? What if it causes data issues ? What about the regulator ? Where has this been done before ? ….and so on.

IT and Banking - Strategies Banks should consider

Change cannot happen without these people so banks can define a strategy and announce it from the highest place, however, this cannot happen unless they bring their people with them. Banks need to:

      • Empower their IT personnel to make decisions and take risks. While it may lead to short term problems, the longer term rewards are considerable.
      • Show their IT people that they are a valued part of the business; IT is the centre of any bank so it’s not clear why costs are continually being cut in this area. Improved IT is where banks can continually reduce business costs while improving customer experience when targeted correctly.
      • Be prepared to break the eggs to make the omelette. This does not mean throwing away what is there and working, but reuse and refactoring where appropriate to ensure continuity of business while reusing good systems that are worth keeping, and retiring systems that are not.

In summary, grand ideas of Fintech incubators and ‘support’ for innovative companies is not enough. The company must be prepared to break eggs to make their digital omelette.


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Written by : John Power