Unlocking the full potential of the fintech revolution

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The Innovate Finance Global Summit taking place this week in London brings together a buzzing community of fintechs of all sizes alongside more establish financial institutions and technology companies. Amid the panels and roundtable discussions and other conversations I took part in, it was clear that the pace of change in the industry is undeniable. In this post I reflect on the road ahead for transformation in financial services.

The financial services landscape is rapidly changing – old patterns of operation are being disrupted by new technologies, many developed by fintechs. These innovative market entrants are already creating solutions that are replacing existing services with more agile approaches.

However, the fintechs are not just enhancing current provisions, they are also developing entirely new products; the building blocks of next generation mobile banking apps. And it doesn’t end there. Technology platforms are in turn embedding financial services into their technologies, such as Apple Pay and Google Pay.

Developing new and innovative services

This rapid digital transformation is being given additional impetus by consumers, who are increasingly expecting the same seamless service they receive when ordering pizza or booking a train from their financial services providers. These new types of transactions are made possible by the convergence of a range of technologies, including 4G, Artificial Intelligence (AI), cloud computing and smartphones.

But there are still hurdles to overcome. A more diverse financial services ecosystem – especially one that is rapidly evolving – needs the skills to support it, and although innovative new banking products are proving popular, there is an inherent conservatism amongst some customers around change. A lack of sufficiently skilled staff and a trust deficit are creating a drag on this transformation, which in turn could restrict long-term profitability.

The ramifications of the fintech revolution are wide-ranging and extend far beyond the services offered by the high street bank. For example, almost a third of the global population doesn’t have access to financial services, including more than a million people in the UK. These new platforms and players are starting to close that gap, especially in emerging markets.

So how can the established players in the financial services sector best leverage the agility and innovation of the fintech community? And how can they overcome the incipient skills shortage and bridge the trust gap?

The impact of regulation

The impetus for all this change dates back to the financial crash of 2008. What emerged was the appointment of a whole new set of regulators that were given a mandate to promote competition and innovation within the financial services market.

And it worked: digital channels, mobile channels and the growth of challenger banks have all been empowered by these changes. Add in the pandemic, which hastened the shift away from cash, and things really are on the move. In this more digitally-focused environment open banking and API-based technologies have started to realise their potential.

However, it’s when you integrate in AI operations, such as credit scoring, that things really start to leap ahead. With AI, it’s possible to automate routine processes, increased the speed of service, enhance data processing, reduce costs and improve customer support.

Building valued relationships

All this isn’t just changing the relationships between customers and their financial service providers, it’s also transformed the relationships between banks and fintechs. Yesterday’s adversary is today’s valued partner.

And it’s easy to see why. Established banks with hundreds of thousands of staff are never going to be as nimble as a small start-up. Tapping into that energy and agility has seen financial technology advance faster than it has ever done before. Not participating in this transformation isn’t an option but problems remain.

Investing in digital transformation

First, fintechs are having to work with systems developed for a branch-based model, which simply weren’t designed with the new types of customer interactions in mind. Combining legacy technology with an API-based solutions can take time, which is why the big banks are directly investing in fintechs to empower the development of their core banking platforms.

This symbiotic relationship has seen traditional banks benefit from fintechs’ speed and innovation. On the flipside, a more rigorous approach to engineering has been embraced by the fintechs. It’s been a convergence of activity that’s really helped these partnerships accelerate.

News ways of thinking

The aim of all these developments is to make financial services easier, faster and more cost-effective but this type of transformation is dependent on agility, a concept at odds with conventional banking methods. As a result, bringing new ideas quickly to market can require a change in the mind-set and culture of the established players.

There can also be regulatory hurdles to overcome. Fortunately, regulators are increasingly knowledgeable about the changes currently underway, which is especially helpful where innovative services that personalise data are being developed and launched.

Bridging the skills gap

This level of change raises questions around the types of skillsets required to manage the transformation. It might be AI, natural language processing, blockchain and cloud today, but quantum computing and the metaverse are already starting to make themselves felt.

New financial ecosystems are beginning to emerge – ones that encompass both fungible and non-fungible tokens (NFTs). Having the right skills in place is essential for financial service providers if they are to safely and effectively leverage these technologies. Fortunately, IBM has the resources and knowledge to help banks integrate fintech solutions and reskill their staff to drive through an accelerated and seamless digital adaptation.

Building trust for the future

This is essential as there is one certainty – tomorrow’s financial services sector will be as different from the current model as today’s digitised approach is to the old analogue methods. Any banking model that doesn’t align with the customers’ banking requirements is destined to lose ground. Choosing the right technology partners has never been more important.

Keeping pace with change

The financial services sector is experiencing unparalleled and far-reaching change. Keeping pace, while also remaining compliant, is complicated, especially as this rapid business transformation is built on new technologies such as AI and cloud.

IBM is a trusted partner of the financial services industry with decades of experience and a depth of expertise. In recent years we have been involved in some of the sector’s largest transformation projects. We can help you enhance your customer journey and build new revenue streams. Click here to see how we can empower your digital transformation and to read about how we’ve already helped others.