Last chance! Only a few days left to register for The Financial Brand Forum 2017 and save! Hurry, ends Dec. 9th!   REGISTRATION INFO
Harland Clarke | Gen X: The Next Silent Generation

What Differentiates Banking and Fintech?

Technological innovation is creating new business models and revenue opportunities for FinTech firms globally. As disruption in the banking sector continues, what are the lessons that legacy banking organizations can learn from the new start-ups?

Subscribe TodayWith all of the recent discussion about the disruption of the banking industry by FinTech start-ups, it may be the right time to discuss the differences between FinTech start-ups and incumbent banks. From a very basic level, the digital disruptors are usually associated with mobile functionality, simplicity, big data, accessibility, agility, cloud computing, contextuality, personalization and convenience.

Alternatively, with the exception of convenience (from a physical location perspective), most traditional banks have few of these qualities, but instead are associated with trust and security, significant capitalization and customer indifference.

But, what do industry leaders think? What is the biggest difference between FinTech start-ups and incumbent Banks?

Chris-SkinnerChris Skinner, Chairman of the Financial Services Club and author of ten books including the bestseller, Digital Bank (@Chris_Skinner)

“Startups have no existing structure to change so they can change everything. The challenge is how to convince customers to change though. Incumbents have millions of onboarded clients and so to change anything takes time. Most have the time though as customers are slow to change. Fundamentally though both are facing two very different challenges – FinTechs are creating while the incumbents are converting.”

brett-king-90x90Brett King, CEO and co-founder of Movenbestselling author and Breaking Banks radio show host (@brettking)

“The answer is relatively simple … inertia. Startups have zero process or organizational inertia to circumvent. Alternatively, most legacy banks have an over abundance of both.”

Jim Marous pic 2013Jim Marous, Owner and Publisher of the Digital Banking Report and Co-Publisher of The Financial Brand (@JimMarous)

“The biggest difference is the overarching culture of innovation and the organizational structure. Instead of silos and the need to defend turf, FinTechs have flatter organizational structures with fewer barriers to change. This structure encourages not only innovation, but the ability to tear down and rebuild.”

Jason BatesJason Bates, Co-founder at Mondo Bank (@JasonBates)

“The world has started to dramatically change and banks are fighting to ‘protect’ their established business, to turn the oil tanker, to find new relevance and a new fit. Start-ups are natives of this new world, and are fighting to achieve scale. Can legacy banks find the speed, agility and new business model faster than FinTech can find scale? Legacy infrastructure, entrenched culture, and a disengaged workforce make that very difficult.”

Alex JimenezAlex Jimenez, SVP of Digital and Payments Innovation at Rockland Trust (@RAlexJimenez)

“The biggest difference between legacy banks and FinTech firms is that banks focus on the management of risk and FinTech focus on managing the overarching customers experience.”

Bradley-LeimerBradley Leimer, Head of Innovation, Santander Bank, N.A  (@leimer)

“Scale and trust are the most significant differentiators between the types of organizations. Incumbents have it and protect it. FinTech disruptors have to hustle and differentiate to achieve either. Both are critical.”

Sam MauleSam Maule – Emerging Payments Practice Lead at Carlisle & Gallagher Consulting Group, Inc (@sammaule)

“FinTech has the ability and opportunity to think narrow and deep. The advantage is to be able to focus on singular use case solutions. Alternatively, legacy banks have to think across product lines and with silos … which is tough.” 

Richard Gendal BrownRichard Brown, Executive Architect for Banking and Financial Markets at IBM (@gendal)

“Banks have an asymmetric risk profile for innovation. FinTech firms have a limited downside (close, try again), whereas banks have a severe potential downside (reputation, operations, etc)”

Stewart BromleyStewart Bromley, Director of People and Customer Experience at Atom Bank UK (@atom_stewartb)

“Freedom, pace, energy, adaptability and flexibility, customer-centricity are all words that quickly come to mind with FinTech firms. I think the incumbents are shackled by governance, talent, technology, organization and focus on risk. All of this makes innovation ‘too difficult’“ 

Anne BodenAnne Boden, CEO of Starling Bank UK (@AnneBoden)

“The common theme for FinTech companies in that they fully embrace the concept that technologies in every day use in other industries can be used in banking without compromising the strict and rigorous demands of a highly regulated industry. The difference is more a question of whether a bank embraces FinTech. Is it part of the sector itself, such as Starling Bank … does it gain energy from FinTech such as Barclays with TechStars … or is it going to miss the boat (I will be kind and not name the firms)?”

Duena BlomstromDuena Blomstrom – Independent Digital Consultant at Blomstrom.com (@DuenaBlomstrom)

“Size really does matter. The bigger the organization, the harder it is to remember one’s dreams, knowledge and common sense. Banks and FinTech both know what’s right from a technology perspective and from a customer experience perspective, but only Fintech firms can keep their religion and execute. It takes having big, bold visionaries to keep banks competing given their size, so auditions for ‘This Banks’ next set of Big Balls’ should always keep rolling.”

While each of the above diverse points of view have merit, all point to an overarching conclusion.

The most significant difference between FinTech start-ups and the incumbent banks is the purposefulness of their people. In other words, each and every person within a Fintech start-up has a singular purpose for being there. They all must be on the same train, with nobody there simply as a passenger. There is no place to hide. There are no legacy stipulations to guide the process or hinder achievement.

When a start-up is created with a singular purpose, or have identified a particular gap in the marketplace, the team can only be comprised of individuals who have the same vision and who can add significant value to that endeavor. When lead times are tight and profits are small, every person on the payroll plays the role of a director or shareholder and must add value to the company … daily.

This is the starkest difference between the current incumbent banks and the new breed of start-ups. Within legacy banks, we see scores of assets (both human and otherwise) accumulated over time that add little incremental value. In fact, a significant portion of these assets may actually be a drain on productivity, innovation, corporate energy/enthusiasm and profitability.

MARQUIS | TriggerPro

Can Banks Get Their Mojo Back?

As referenced in my previous article, ‘Career Bankers are the Industry’s Biggest Threat‘, many of the least productive people are not restricted to unimportant positions. Many have been at these organizations for a significant length of time and are now ‘batteries without a charge’.

So, the questions becomes, ‘can legacy banking organizations make the significant changes required in the number, structure and motivation of their employees’? In start-ups that have matured into larger firms, we see them making bold moves to prune based on the changing marketplace or objectives of the company.

Good examples in recent times are people like PayNearMe, who laid off one-third of its employees when it decided to focus on it’s business-to-consumer efforts. We have seen similar changes to companies like PayPal recently also.

This is a global epidemic in the workforce of banks, with no simple fix. Some global players have made bold steps, such as Commonwealth Bank of Australia under the leadership of now Barclays CTO Michael Harte.

Not being able determine the best way to make cuts or accelerate the change that they wanted, Commonwealth Bank took the bold step to move 1,500 of its IT staff outside of the company into EDS who has subsequently been bought by HP. This brought meaningful change to the direction of their efforts and, more importantly, to the purpose of each of the people involved.

Outsourcing may not be the answer for many legacy banks, but the industry needs to make these type of bold moves to move the needle and embark on the level of transformation needed in the digital age. Unless bold moves are taken throughout global banking industry we will continue to see more of the same; billions spent, underwhelming delivery, and increasing frustration of the ‘Disenfranchised”, ‘Outsiders’ and ‘Eager Beavers’ referenced in my previous article.

The difference between today and the last 5 decades in the banking industry is that the industry can no longer ignore the ‘fintech barbarians at the gate.’ It is time to rise up to the new challenges and challengers. The time to act is definitely now.


Brear_90x90

David Brear is a digital financial services transformation consultant, designer, technologist, curator, writer, speaker, strategist & self-described general FinTech Fanboy. Brear has a deep range of experience & qualifications across a number of digital disciplines with experience in agency, consultancy & client side work for a number of top financial services brands. Most recently, Brear headed the UK Digital Banking practice for Gartner Consulting, helping key banking clients put in place the right foundations and innovations to grow, expand, defend and run their markets and operations. David Brear can be followed on Twitter.

Search For More: Technology Strategies, , ,

All content © 2016 by The Financial Brand and may not be reproduced by any means without permission.

The Financial Brand Forum 2017 | May 17-19 | Las Vegas

Comments

  1. Disclaimer: I am a friend and supporter of David M. Brear, digital transformation consultant at Think Different Group. I am also a big supporter of The Financial Brand and its owners.

    One of the things that makes me laugh about articles like this is that the big banks have been very innovative and disruptive. The recent financial crises illustrates that fact. It was innovative and disruptive products and the related technology that led the big banks to soaring profits before and after the financial crisis.

    David, you said that “With all of the recent discussion about the disruption of the banking industry by FinTech start-ups” What disruption? You did not mention any specific disruption. I agree that there have been some small success. P2P lending in the consumer and business space is a bit disruptive. FinTech startups Moven, Simple and GoBank have been disruptive. These companies have disrupted profit from one part of the banking sector and moved them to another. The investment space has been particularly interesting with all the robo advisor firms out there.

    You said that “The difference between today and the last 5 decades in the banking industry is that the industry can no longer ignore the ‘fintech barbarians at the gate.’ It is time to rise up to the new challenges and challengers. The time to act is definitely now.”

    What I see is many banks do not need to spend any of their money on research and development. They can focus on the smart and not so smart regulatory burdens that have been initiated over the last several years and finding ways to reduce their efficiency ratio. The FinTech sector is the new bank R&D. Banks can now use disruptive technology from companies like Geezeo, CuNexus, Mitek, Bottlomline Technologies and Avoka (to name a few) to do amazing financial services related functions for consumers and businesses. These types of companies disrupt the status quo and that is important.

    Not all FinTech companies are trying to disrupt financial services. Many are trying to create outstanding services for consumers and businesses for the the existing financial services industry.

    Anyway, that is how I see things.

  2. David Brear says:

    “One of the things that makes me laugh about articles like this is that the big banks have been very innovative and disruptive. The recent financial crises illustrates that fact. It was innovative and disruptive products and the related technology that led the big banks to soaring profits before and after the financial crisis. ”

    DG – Banking products innovative? Broadly speaking they were put in place shortly after the US were formed from a retail perspective and have been iterated very little since then. Innovation got banks out of the crisis? Im not sure that can really be said to be true either.

    “David, you said that “With all of the recent discussion about the disruption of the banking industry by FinTech start-ups” What disruption? You did not mention any specific disruption. I agree that there have been some small success. P2P lending in the consumer and business space is a bit disruptive. FinTech startups Moven, Simple and GoBank have been disruptive. These companies have disrupted profit from one part of the banking sector and moved them to another. The investment space has been particularly interesting with all the robo advisor firms out there.”

    DG – You have a very US centric view here I feel. Nutmeg, Funding Circle, eTorro have disrupted the market in terms of the customer experiences and services that they offer. Do you think disruption is purely about sales?

    You said that “The difference between today and the last 5 decades in the banking industry is that the industry can no longer ignore the ‘fintech barbarians at the gate.’ It is time to rise up to the new challenges and challengers. The time to act is definitely now.”

    What I see is many banks do not need to spend any of their money on research and development. They can focus on the smart and not so smart regulatory burdens that have been initiated over the last several years and finding ways to reduce their efficiency ratio. The FinTech sector is the new bank R&D. Banks can now use disruptive technology from companies like Geezeo, CuNexus, Mitek, Bottlomline Technologies and Avoka (to name a few) to do amazing financial services related functions for consumers and businesses. These types of companies disrupt the status quo and that is important.

    DG – Again very US centric perspective here David. If banks just see startups more broadly as a was to outsource R&D as you suggest this is going to end in tears as it relies on those companies being their to support the banks ecosystem not to challenge the monopoly of it.

    A better response would be using them to help accelerate the change that has to happen within those organisations to allow them to compete in the way I see people like Santander doing.

    Its true that while the capability to use partners to innovate is there, 98% of banks are not using them. In fact, there are still many banks that have not yet offered mobile banking in the US!

    In Europe changes like PSDII, switching policies, and also the dramatic rise of new licences being issued mean that banks have to change. They are in a position that start up small companies will be coming to market with better products, technology, customer propositions and no legacy… this is forcing them to change their tact and quickly.

    Not all FinTech companies are trying to disrupt financial services. Many are trying to create outstanding services for consumers and businesses for the the existing financial services industry.

    DG – Agree some are in the same way that suppliers have always supplied to banking customers. Difference is there are a great number that feel they actually can just do a better job of doing it than the banks themselves and some of them are not impaired by 300 of thinking and actually have a bigger base and more to invest.

    Who would have thought that I would be buying my coffee this morning with a payments system delivered by a computer company.

  3. @David Gerbino – You probably need to broaden your horizon to see disruption in FinTech – and heed the lessons from other markets. The biggest players in finance in most of Sub Saharan are mobile operators not banks e.g. MTN mobile money in Uganda moved more money in it ecosystem that all the banks combined – and it took them only 5 years to get there.

  4. The D Squared Battle Continues…

    Mr. Brear,

    You bought coffee with a payments system delivered by a computer company. That is amazing! The UK sure has some awesome innovation. Here in the United States of America that has not happened. The closest thing we got was an American computer company, Apple, introducing the American people to a safe way to hide credit card numbers using the new tokenization standard from American companies Visa and MasterCard and using those ancient payment rails to allow for contactless payments at stores and a simple in-app payment experience. Since Apple doesn’t like to open up its hardware to 3rd party companies, American banks were not allowed to provide this service. Since Apple’s mobile operating system competitor does allow 3rd parties to work with its hardware, it will be interesting to see if any American Banks create their own mobile wallet on the Android mobile OS or just use Android Pay.

    Mr. Brear, when I refer to innovative banking products and services I do not mean the retail deposit products. I agree with you, those are deprecated. I wrote an AmericanBanker BankThink article about that last year

    ==> http://www.americanbanker.com/bankthink/where-is-the-bank-innovation-1067808-1.html

    When I talk about banking products, I am referring to the full set of products and services offered by the largest American banks. Retail banking is only a small part.

    Mr. Brear, my comments were focused on the American market. Unlike the rest of the world, America has many banks. It would not surprise me if there is at least one state in the USA that has more banks then the UK or Europe.

    The US has over 5,000 banks. How many banks are there in the UK and Europe?

    The US has over 5,000 credit unions. How many credit unions are there in the UK and Europe?

    Most of these banks and credit unions rely on the technology prowess of their vendors. The vendors build the technology that the banks use. Many of these vendors have brought forth innovative and disruptive technology to consumers. The accelerated pace of Venture Capital in FinTech is bringing even more. Some of it competes with the existing players and some of it works with the existing players. Some of it gets purchased by the vendors supplying the banks and credit unions.

    I do know a little bit about some banks that are not from the US:

    1) BBVA is in the midst of its 7th edition of its OpenTalent competition. I know you are aware of this since we are both involved in the regional finals later this year. The OpenTalent is for any startup not just BBVA employees.

    2) Santander – You mentioned Santander, another European bank. Are they only innovating internally? No. They are aggressively searching the world for startups and our friend Bradley does it in the USA.

    3) Barclays – Barclays has two accelerator labs in the UK. Does this lab build new tech with only Barclays’ employees? No! They work with innovative and disruptive startups from around the world. In fact I met some on July 15 in New York City. Where did I meet them? At Barclays’ newest accelerator @ThinkRiseNY where 11 startups from around the world have just begun the program. Barclays also announced that they will be adding more of these labs in other parts of the world.

    There is nothing wrong with outsourcing innovation and disruption. Success will come to those who embrace the changes we are in the midst of. The problem is that there are banks and credit unions ignoring the changes from the last couple of decades. Mr. Brear, you mentioned that there are US banks that do not offer mobile banking. If that is true, they are easy targets to be disrupted out of existence. If and when that happens, I’ll call it progress.

  5. @Allan Rwakatungu I am very well aware of what has happened in Africa and other parts of the world. I have watched, learned and met some of the people who led some of those changes and/or in market today bringing incredible innovation. I also make sure I stay informed with the world of FinTech by listening to my friend’s radio show on AM 1160 about FinTech. You can hear me call in and wish my friend Brett congratulations on hos 100th episode of BreakingBanks.

    ==> http://www.breakingbanks.com/fintech-hearts-nyc/

    Allan, if I were to broaden my FinTech horizons, it would have to be off-world. That could be fun – lol.

  6. I’ll offer four points.

    1 – I agree with David B; now is the time to act. This is particularly important here in the States.
    2 – Most of the Fintech people I have met are hardly barbarians, in fact, they are a rather friendly bunch. Most clearly see the opportunity that exists by working with FIs, not against them.
    3 – David G – Omni-universal banking would be remarkably disruptive.
    4 – I hold fast in believing, that the bank of the future, will in fact, still be a bank.

    Thanks for a great read.

  7. If the Fintech’s product provides a solution that challenges the revenue model of incumbent banks existing product sets while not decreasing service then thats the big difference. I don’t see banks innovation incubators rapidly deploying products or services the cannibalize existing revenue.

Speak Your Mind

*

Read more:
Complex Legacy Platforms Holding You Back?
Close