There are some who believe the disruptive forces of fintech threaten the banking world. The reality is fintech could help banks reinvent themselves, writes John Kennedy.
Like death and taxes, banking is inevitable. But there is no hiding away from the fact that, post the financial meltdown of 2008, intrinsic relationships between banks and their customers have been permanently altered.
Even as the ugly aftermath of the property market collapse in Ireland continued to make itself felt, banks kickstarted strategies to digitally transform, downsize, reduce frontline workers and get more people to use apps and the internet instead.
‘New frontiers like robotics, blockchain and the internet of things are bound less by geography than by the industry’s ability to adopt and scale clever ideas that improve service and efficiencies’
– RICHARD LUMB, ACCENTURE
On the face of it, this makes sense, it is progress after all and saves money, but a relationship that once existed and that fractured has not been fully repaired.
But fintech could help fix it.
I grew up in a market town where, every Friday, banks became the epicentre of commerce as farmers brought their cattle to the local mart. For a few hours, the town took on something of a carnival atmosphere; every pub and hotel was full to bursting. Friendships and acquaintances were renewed and deals were done. Business and commerce were in full flow, it was an economy you could just reach out to and touch. At the heart of this hive of activity were the banks, the pillars of the community.
A lot has changed. There are still cattle marts, just not as many. In a post-boom economy, even the marts have been digitised and farmers can bid from home by smartphone if they wish.
Now, when you go into a bank you queue for a machine, not a person. This is efficient, fast and frees up frontline workers to do other things.
But in their haste to be digital and change how they provide services, a few things have fallen through the cracks.
Five years ago, one of the last occasions I ever queued in a bank to do a lodgement with a human teller, I overheard an old woman in her 70s or 80s remonstrate with a clerk about something she wanted done. “You know you can do this on the internet now?” the 23-year-old female clerk said loudly, catching everybody’s attention. “I know,” the old woman said, embarrassed. “But can you just do it for me now?”
This absurd scenario came back to me recently when a call from mum came in. She was furious. “40 years with that bank …” “Slow down what’s wrong?” I said. Agitated, she replied: “I asked them to send me a print out of something, they said they would. They didn’t. I rang back and they said I had to do it over the internet.”
Anyone who has ever tried showing their elderly parents how to use a banking app will know that it requires patience. And, to them, banking is still a people business.
It hit me that perhaps this is something banks should be doing more of, training the elderly in tech. As the relationship has been altered with ordinary punters up to entrepreneurs and captains of industry, surely it can be rekindled?
And fintech, I believe, is the opportunity to do just that.
Will fintech eat banking?
The term fintech may be the latest thing, but, for as long as there have been computers, there has been financial technology. Payment processing and salary dispatch gave way to online banking and today’s apps. I still recall dropping a disk up to the AIB bank centre in Ballsbridge one Christmas in the ’90s, realising that if I was late there would be no festive pay day for me or my colleagues. No pressure.
A lot has changed.
Fintech runs the entire gamut of the finance industry, and the generation of start-ups that define fintech – whose premise is to use technology to make finance more efficient – straddle everything from FX trading to pensions, to cryptocurrency, share trading and derivatives, to simple apps to help punters manage their money or send each other money or value faster.
In many ways, fintech is being portrayed as a generation of young companies whose sole purpose is to disrupt the incumbent financial operators.
Disrupt is an interesting word, but it doesn’t necessarily mean destroy.
There are suggestions that bankers are actually spooked by fintech. A recent PwC survey of 176 banking and capital markets (BCM) CEOs across 62 countries cited cybersecurity and fast-moving entrepreneurs nimbly grasping the new opportunities emerging from technology as key risks.
“Driving delivery of technology and innovation will be critical in delivering the choice, service and pricing bank customers want,” said Andrew Doyle, head of banking and insurance at PwC Ireland.
“The pressures of economic conditions, regulation, costs, risk management and increasingly cybercrime remain. Getting this right now, though, has never been more crucial for the sector. As one of the CEOs we surveyed noted – the world needs banking but not banks.”
Doyle has a point. The fintech revolution is throwing up all kinds of possibilities, from new cryptocurrencies like bitcoin to neobanks and peer-to-peer lending players that can compete with banks on competitive terms.
Global investment in fintech ventures in the first quarter of 2016 reached $5.3bn, a 67pc increase over the same period last year, according to Accenture.
Europe and the Asia-Pacific regions are faring particularly well in this regard, with the percentage of investment going into companies in these regions doubling to 62pc.
“The drive for fintech innovation is spreading well beyond traditional tech hubs,” said Richard Lumb, Accenture’s group chief executive for financial services.
“New frontiers like robotics, blockchain and the internet of things are bound less by geography than by the industry’s ability to adopt and scale clever ideas that improve service and efficiencies.
“The so-called ‘Fourth Industrial Revolution’ is a global phenomenon that brings new innovation and digital companies that compete and collaborate with traditional financial services. Bank customers stand to gain from this.”
Not only do bank customers stand to gain, but entire economies, too, in the form of new jobs. Within Europe, the looming Brexit referendum is being watched very carefully and some cities are harbouring ambitions to be the next City of London, using fintech as a lever. While the idea may be a bit like Portland in the US declaring itself the next Wall Street, the opportunity to become a financial hub is intoxicating.
Ireland, too, has been caught up in the fintech frenzy. Last year, the Irish Government drafted the IFS2020 strategy for Ireland’s international financial services sector, chaired by Minister for State Simon Harris. In 2016, a new action plan is expected to be drafted. A report released by Deloitte last March suggested that the fintech sector could create as many as 5,000 new jobs by 2020.
“Employment in the IFS portfolios of Enterprise Ireland and the IDA has increased by 2,608, up from 35,448 at end of 2014 to 38,056 at end of 2015, representing 7.4pc growth in the sector, keeping us firmly on track to reach our ambitious growth target by the end of 2020,” Harris said in an update on the strategy.
State agency Enterprise Ireland’s fintech portfolio includes companies like Fexco, Taxpack, Fineos and Fenergo. The entire portfolio employs more than 8,000 people, of which 40pc are located outside Dublin.
Inward investment agency IDA’s portfolio of fintech companies include global giants like Citi, MasterCard, IFDS, Aon, Munich Re, Zurich, Liberty Insurance, Fidelity and Pramerica, to name but a few.
Fintech is the future… at grassroots
Rather than being spooked by fintech, I believe the banking system can actually embrace fintech to its own advantage and use it as a lever to reorientate, renew and strengthen its relationships with customers.
At a grassroots level, it could take advantage of the prevailing winds of change in payments technologies, like the coming arrival of Apple Pay or homegrown systems like Colm Lyon’s Fire Financial Services, and help Ireland gravitate away from a country dependent on cheques and cash. This could help businesses get paid faster, for example, and move away from the damaging culture of “the cheque is in the post”.
The fintech revolution could also help foster a spirit of innovation within services, going back to my earlier point about how banks can perhaps become the focal point of education for those who aren’t digital natives. They could hold workshops on how to embrace apps and the internet in a way that isn’t going to isolate them. It’s a win-win. Specific apps for elderly users to do online banking securely and naturally are still few and far between.
Returning to my point about marts and how banks could once again be the focal points of commerce in the community, banks need to evaluate the kinds of technologies surfacing and enable change, such as encouraging crowdfunding within the community, for example, for new ideas by local entrepreneurs.
One of the banks that is actually grasping the nettle is Bank of Ireland, which has not only invested in sectoral expertise to ensure knowledge of fields from software to the cloud are understood by managers countrywide, but is actively evaluating the new fintech paradigm.
In a recent interview, Bank of Ireland’s David Tighe said that banking is at a digital crossroads and that a digital transformation of the banking industry is underway, led by new fintech technologies, the cashless society and an upsurge in start-up activity.
The bank is establishing drop-in areas for entrepreneurs called Workbenches, which it has set up in Dublin, Cork, Galway and soon Limerick. It follows hot on the heels of Bank of Ireland establishing a StartLab incubator for start-ups on Eyre Square in Galway.
In recent weeks, we reported on a proof-of-concept by the bank and Deloitte in terms of using blockchain technology as a way of tracing transactions in keeping with MiFID II regulations. The successful endeavour showed how cryptocurrency technology could be bolted onto legacy infrastructure and used to make transactions more efficient and transparent.
If banks are spooked rather than excited by fintech, then they do need to be worried.
Disruption does not equal destruction. If anything, the fintech revolution is an opportunity for banks to restore that intrinsic relationship with the communities they vowed to serve.
IFSC fintech image via Shutterstock