Photo Credit To Arnon Dror Via Flickr
During the FiNext Conference that took place in Orlando Florida (August 2019), many industry professionals from the FinTech space gathered together to talk about the future of banking. With the rapid growth in FinTech, some argued that large banks are not properly preparing for a huge industry shift into FinTech. We are already witnessing the digital shift that is occurring in society. If you ask a friend the last time they visited a bank, the chances are slim unless they are employed by one. Whether we talk about lending or investing, it’s evident the millennial generation is doing everything on their phone. Why are some of the major banks lagging innovation in the FinTech space?
FinTech Companies Running Laps On Banks In R&D Spending
Dion Lisle ( Managing Director at FACERE25 ) took the stage at FiNext covering these issues. FACERE25 is a consulting firm with the ultimate goal of bridging the gap between FinTech and Banks. Dion spent the last 18+ years working alongside banks and financial institutions. Some of his previous roles were within Citi Bank, First Data and Capgemini. Dion argued that large banks are extremely valuable due to their customer base and reputation, but lack the proper protocol to keep up with emerging FinTechs.
Dion argued that banks are historically macro/financially focused on improving bottom lines through increased commercial loans, increased credit card sales etc. FinTechs on the other hand are very “singular focused” on user experience and innovation. FACERE25 argues a huge “innovation gap problem” exists in the banking system right now. The large tech players such as Google, Amazon and Apple are spending on R&D investment, while many large banks are spending much less. If we take a look at the figure below, we quickly see how much the large tech players are spending. Amazon for example spent $16 billion on R&D investment in 2017 while JP Morgan only sat at $0.5 billion. The figures talk for themselves if we compare where Amazon was five year ago vs today. With the lack of spending over the years, Banks now face challenges from FinTech companies such as Square, who are creating one-stop shop services for any merchant - all through digital measures.
Image From FACERE 25 Presentation @ FiNext 2019 Con, Orlando FL
What’s Stopping Traditional Banks From Innovating?
It’s a known fact by now that Banks are very “risk averse” when it comes to altering their technology stacks. According to FACERE25, they have consulted numerous banks that don’t want to affect their “reputation”. This is relevant in many banks where employees would argue they still operate on systems from the 70s. Dion stated that bank executives have stressed the fact that they want to innovate, but getting through regulatory concerns is the main issue. This is why FACERE25 helps banks with “FinTech outreach programs.” These programs allow banks to work alongside established FinTech companies with the ultimate goal of going from pilot to integration. Banks need to start connecting business unit leaders to other leaders from surrounding FinTech companies. Sunrise Bank was present at FiNext conference and mentioned their recent entrance to this space. Sunrise Bank understands the important of innovating to stay afloat in the future. They now work closely with FinTech leaders, with the ultimate goal of incorporating new technologies / solutions for Sunrise clients.
JP Morgan Tackling The FinTech Space
Visionary Financial asked Dion which banks if any were doing the best job handling the “innovation gap problem”. Dion stated that among the largest banks, JP Morgan was doing the best job right now. He mentioned that JP Morgan is working very hard to tackle future trends in Blockchain and Artificial Intelligence. FACERE25 is seeing aggressive hiring from JP Morgan in this space. He also mentioned that JP recently hired 1,000+ individuals in Silicon Valley to work on the Blockchain and AI space.