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Capitalising on the Fint-Exodus

by uma

 

By  Andrea Sismonda: Enterprise Account Manager at Riskified

News of mass staff exoduses from banking and tech companies to fintech companies sparked many a prophecy-laden article when the data was published by Revelio Labs in early June 2022. Less newsworthy, was the announcement that came a little under two months later that 2022 might actually turn out to be the year of layoffs for fintech.

It was perhaps not too difficult to foresee. Volatility and unpredictability continues to surround fintech companies that are, ultimately, largely cryptocurrency-based. Indeed, many of those early-June articles encouraged prudence and levelheadedness, by including notes of caution with their announcements of the exodus. ‘Some employees will choose stability over change’, noted Bloomberg, somewhat prophetically. Zach Anderson, Natwest’s chief data and analytics officer, who gave the stark reminder of banking’s advantage over fintech companies, said: ‘we have customers and they don’t’.

But hubris on banking’s part may not be earned just yet. It’s clear by now that the craze for trading and cryptocurrency investment engendered by the pandemic, likely played a role in fintech’s surge to 2022. Industry insiders seem to recognise this. ‘My feeling is that all of these organisations, the crypto organisations and everyone in fintech, has just been hooked up into a frenzied panic around talent’ said Dave Cunningham of Coinmama.

The fact remains that the fintech sector continues to expand into new areas. It is increasing its foothold in markets outside of Europe and the US, and it is likely to remain an attractive investment for some time to come. Similarly, though the air of seeming perma-scandal that surrounds the formerly invulnerable leaders of Silicon Valley makes for an alarming portent, success stories elsewhere in the tech sector continue to emerge.

If banking continues to operate business-as-usual, it will, inevitably, encounter problems as usual. The seeds for the next major challenge from tech or fintech companies have likely already been sewn, brooding and lying in wait in the darkened offices of some organisation somewhere in the world that we may not yet even know about. Banking can prepare by using this moment of reprieve wisely. Talent has been returned to its shores by the changing current of market preferences. But the issues that enticed applicants to tech and fintech companies from banks in the first place remain. ‘Legacy processes, legacy people and technology’ (Bloomberg again)—banks must regain their competitiveness and give talent that is accustomed to the flexibility and freedom to innovate reasons to stay. The following are issues they might consider:

Working Flexibility

Employees around the globe perhaps started to feel envy for those granted flexible working environments since news of the slightly wacky workplace environments of Silicon Valley companies started to emerge in the 2000s. Working nine-to-five in open-plan offices became more difficult knowing that your counterparts at Google were offered ping-pong tables and (whisper it) the freedom to choose their own desk.

But after the forced work-from-home experiment that was the pandemic, the results are clear—employees prefer remote and/or hybrid working, and, realistically, are going to seek out the companies that offer it. That choice will come at the expense of those that don’t. Banks did embrace home-working while it was necessary, and data suggests that remote working arrangements are still being offered. There is also a degree of inevitability about the acceptance that this, as well as wider ESG principles, is here to stay. Companies now have to accept that the social and financial benefits of remote and hybrid working matter not just to their own employees, but to an increasingly ethically and environmentally conscious public.

There is little to suggest that banks are actively opposed to this shift. But issues could come from banking’s famously cumbersome and slow-to-change nature. Either banks will make the move to incorporating remote and hybrid working into their fabric permanently, or their attractiveness to current and future talent will be conditional. Employee loyalty could be retracted, if the winds of finance change and the economic viability of tech and fintech companies increases again in the future. Businesses must not simply revert to pre-crisis ways of thinking and working.

Competition and Innovation

A new technology or service threatening to come for banking’s crown is nothing new. But what is new in 2022 is the sheer number of innovations that threaten to render aspects of traditional banking at least partially obsolete.

Transaction fees for card payments have long been a bane for retailers. With Request to Pay now offering a means of circumventing fees, research suggests that only the limitations of current technology and infrastructure is preventing it from being implemented more widely. Where there is demand, there is opportunity, and whether legacy banks or third-party companies are going to lead the push to make this technology more accessible will depend on the former’s willingness to innovate and improve its technological capabilities.

The same is true for a heap of other burgeoning technologies. Buy Now Pay Later services, Banking as a Service providers, open banking—these niche services have revealed much about what consumers want from their banking providers. The challenge banks face is not trying to convince customers that their old devoid-of-these-services model is the preferable option, but it is innovating and creating ways of meeting these demands. Embedded finance is here, and banks will need to work harder if they want customers to choose them over the non-banking companies that offer the same services.

Old Technology

Fintech companies are able to adapt and make changes to their services quickly. One reason for this, and one that almost guarantees banks’ permanent condemnation to the competition runner-up podium, is the low-code and no-code (LCNC) development platforms they use to build their apps and web services. 

The advantages of LCNCs are manifold—they reduce the amount of time needed to build platforms, eliminate the need to outsource platform development, and mean that changes can be made to them quickly in response to shifts in market and customer demands. The pandemic necessitated rapid, urgent changes to mobile services, for example. Retail banking lost ground to their younger, disruptive competitors who already had robust and efficient mobile banking services in place or were able to adapt and offer them quickly during this period. The time to learn the lesson and make changes is now, in advance of the next unforeseeable crisis. Change will come fast. The key to long-term viability isn’t necessarily to be able to offer all the specific technologies emerging in late 2022, but to develop flexible working practices that allow for quick pivots and light-footed manoeuvres whenever the need for change arises in future.

On, then, to perhaps the biggest threat facing major banks, and one that is well documented—their ageing, decrepit IT systems. Alarm has been raised throughout the sector, and occasionally these analyses make for fun reading. The idea of powerful global banks operating at the precipice of economic and financial capabilities but sheepishly hiding back-rooms filled with thirty-year-old technology that nobody dares try tamper with is almost slapstick in nature. But the verdict is clear, and PwC’s 2019 fintech survey revealed that legacy systems are identified as one of the biggest anxieties of employees of long-established companies.

Three years later, the anxieties remain—the complexity of the task of modernising some of these systems designed for a pre-digital, pre-internet, pre-global age means that management sometimes sweep it under the rug (the temptation to do so is perhaps even greater following TSB’s 2018 outage). Some organisations are becoming resistant to change overall as a result. The cost of running this ageing hardware and software is rising due to the increasing scarcity of people with working knowledge of it, and it will become increasingly difficult to adapt it to some of the technological innovations listed above. This is likely to spell disaster for those hoping to compete with their more agile counterparts.

New technologies cannot be implemented quickly and efficiently until legacy systems are updated or replaced. Addressing this issue would have a trickle-down effect in the truest sense, making a list of subsidiary issues vanish in its wake. The question is whether the knowledge and creativity of the new tech- and fintech-familiar talent will be directed inwards to help overcome this issue.

Customer Service

An alarming statistic from 2016 presented the disparity in customer focus between banks and fintech companies in stark detail:

 Those from inside made it clear—fintech, in 2016 at least, addressed customer needs in ways those in banking did not believe their own organisations did. Having emerged specifically to target and respond to customer needs, fintech companies offered 24/7 access, omnichannel social media engagement, and the kind of digital-first branding and communication style that gave banks the appearance of dated and archaic institutions. Banks have to a degree adapted in the intervening years, with many now particularly keen to lead their marketing with boasts about their social media availability. But restricted operating hours, long chains of command and institutional limitations of the kind detailed elsewhere in this article mean that there is a ceiling on how competitive they can be under their current setups.

The low-code development platforms outlined above are a large part of why fintech companies are able to be as agile as they are. Banks that do not economise their software development will necessarily not be able to respond to customer needs as rapidly as their competitors.

Banks now find themselves at an opportune moment. They have access to a renewed workforce that is technologically savvy and in possession of insider knowledge of cutting-edge organisations around the world. Collaboration between banks and tech and fintech companies has long been suggested as either a smart move or an inevitability, but while such collaborations have increased in frequency there is still ample opportunity for banks to secure their longevity and regain their competitive advantage. They can do this by applying important innovations from tech and fintech companies to their own institutions.

Banks do, after all, have significant advantages—fintechs have discovered that the statuses and reputations hard-won by banks over decades or centuries as ultimately reliable custodians of consumer money isn’t easy to capture. Fintechs remain in the weaker bargaining position as long-standing customers of major banks are likely to remain so until they are either drawn away by enticements or (less likely but not totally impossible) driven away by ineptitude. But increased competition means loyalty is becoming a less valuable virtue to rely upon. Consumers don’t forget, and studies suggesting that fintechs were most effective at helping people in need during the pandemic suggest the looming possibility of obsolescence for banks.

Those with stakes in tech and fintech should be paying close attention to how much control and trust the older institutions hand over to their new workforce.

 

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