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Currently there is an explosion of activity in the financial technology (FinTech) sector in the UK. Political attention is turning to the issue with David Cameron recently backing the Innovate Finance Manifesto: UK 2020 that aims to advance the UK’s standing as a leader in FinTech innovation hub.
Investment has skyrocketed to $623 million in 2014[1] (from $264 million in 2013), with seemingly endless money flowing in to fuel innovation in the FinTech space and London is increasingly claiming its place as a global hotspot beside Silicon Valley. Global investment rates are projected to reach $46bn by 2020, making it evident that the ongoing technology revolution is on track to completely change our financial habits and the way we interact with financial services and organisations.
This investment boom is driven by innovation coming out of the ever growing number of FinTech start-ups building technology that is poised to bring more convenient services and better user experience for the tech savvy.
Banks are desperate to keep up with these agile start-ups in a race to deliver value to their customers and stay innovative. However most of these banks are still busy dealing with the onboarding of their customers to mobile banking.
The fundamental issue for banks, however, is their inability to tap into the burgeoning start-up scene to access innovation. Due to their rigorous procurement processes and compliance requirements, they are unable to contract with the small and agile players of the industry, creating an enormous gap between the availability of the latest technology and innovation and the millions of customers of banks and large financial institutions.
A new model for accessing innovation
Banks want to access this external provider market and not have to build all the technology in-house. Currently, however, they are held back. This is where large technology providers could come into play. These trusted partners of financial institutions can provide a link and access point to innovation. Banks would like nothing more than somebody to step up and be the link for them to the latest technology and create almost an ‘App Store’ of curated technologies with reduced risk and standardised contractual relationships that they can chose from and adapt.
As a suggested model for the industry moving on, larger technology providers could:
In this way, these innovative products can be made accessible to big banks.
The role of large FinTech players
Large technology providers are in a very good place to lead the way and step in to provide that contractual and technical bridge by providing an integration access point and capability, almost as a managed service for banks. This will allow:
Big banks move slowly and have to deal with legacy technology, which can be a barrier to innovation. As much as they would like to, they are not able to make the necessary changes within their organisations to be nimble, and that’s why they rely on external players to provide them with innovative technologies.
By using their existing relationship with large technology providers, financial institutions can solve the issue that they have in dealing with smaller organisations and bridge the gap between the latest technology offered by innovative start-ups and their own customers.
However, this is by no means the only way forward. This is a very interesting question and a very exciting time for the FinTech sector. How can they move forward? I would like to invite you to start a debate, and share your thoughts with us on how you think the industry should react to bridging this gap. What should the new model be?
[1] Innovate Finance Manifesto: UK 2020
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Tachat Igityan Founder and CFO at destream
03 December
Victor Irechukwu Head, Engineering at OnePipe Services Limited
29 November
Nkahiseng Ralepeli VP of Product: Digital Assets at Absa Bank, CIB.
Francesco Fulcoli Chief Compliance and Risk Officer at Flagstone
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