A recent report from Form3 suggests that the traditional incumbent banks are fighting back against fintech innovation.
Technology is moving at a remarkable pace, yet the majority of European banks are still using systems and infrastructure originally implemented and developed several decades ago. The introduction of PSD2 in 2015 raised many questions about the speed of innovation and technology adoption across financial institutions and signalled the start of the disruption. And now fast-growth, agile fintechs are becoming household names – Revolut, Monzo and Starling to name a few – highlighting the many issues with legacy banking technology and providing better services and products for consumers and businesses alike.
As such, banks are undergoing their own aggressive digital transformations in an attempt to stave of losing customers and claw back revenue from fintechs. But the level of investment from a time, money, resource and regression-testing perspective is huge. In fact, IBM recently reported that 92% of the top 100 banks globally continue to rely on mainframe IT legacy systems simply because of their proven processing power. But the costs to maintain these systems are very high – banks typically spend 80% of their IT budgets on maintenance. That’s anywhere up to £250m a year ensuring existing software meets regulatory requirements and security threats are mitigated.
Matt Cockayne, COO of Yapily strongly believes that, contrary to popular belief, banks don’t realise how good they’ve got it with fintechs. While they’re being hostile towards them, fintechs are actually creating a level playing field and raising the lowest common denominator in the market – which right now is the banks:
“Fintechs don’t spell the death of traditional banks – and the banks shouldn’t be hostile towards them thinking they do. But fintechs are creating a level playing field – with more competition driving constant innovation and raising the lowest common denominator, which right now is banks.
Fintechs are handing banks a real opportunity – one which forces them to rethink their digital strategies to innovate and retain customers. And the fact the majority are friends – not foes – will enable, not prevent, banks to become agile and provide customers with products they want to use and banks can make money off. It’s not enough to paper over the cracks anymore. Now’s the time to leverage fintechs’ knowledge and infrastructure so banks don’t risk losing their customers to more digitally-focused competitor brands.”