What FinTech trends are the experts seeing?
Guest Post republished with permission from the Thomson Reuters Blog
14 December 2018
FinTech challenges and opportunities faced by industry leaders and innovators
We captured the best bits from a discussion on FinTech trends held recently at our offices in London. The FinTech event, hosted by the Thomson Reuters Innovation Office, was moderated by Nayeem Syed, our assistant general counsel and John Finch, CTO for our Financial & Risk business. We welcomed FinTech innovators and decision makers from leading technology companies to join the conversation and share their expertise, including:
- Peter Chapman, Senior Associate at Clifford Chance LLP: Expert in financial regulation, corporate governance, digital currency and cross-border transactions.
- Ajit Tripathi, Director of FinTech & Digital Banking at PWC: Expert in risk management, data management, disruptive technology and digital cultures and behavior.
- Alexa Fernandez, Director of New Digital Businesses at BBVA: Expert in business strategy, strategic partnerships and investments, as well as digital business trends.
- Dr. Lee Braine, Investment Bank CTO Office at Barclays: Expert in technology architecture, smart contracts and distributed ledger technology, and financial services innovation.
- Fiona Archbold, Founder and CEO at Tsumor: Expert in retail banking, financial services innovation and banking technology.
- Chris Withers, Head of Financial Services, Europe for IBM Watson Group: Expert in machine learning and artificial intelligence.
Here are our favorite takeaways from this special FinTech event:
FinTech startups have a lot to teach the big guys
Smaller FinTech startups are changing existing ways of thinking and working. For them, any product or service that is offered needs to be designed squarely around the customer. Design thinking puts the customer front and center in a radical departure from the past, where big companies often spent fortunes to develop solutions without first engaging with end-users.
“Designing with your customers in mind is key,” explained BBVA’s Alexa Fernandez who invested in mobile only UK bank Atom.
It’s not just about millennials
Companies should remember that millennials are not the “saviors of FinTech” and that there is a much broader market to consider. Other important age groups that deserve more focus and attention include, for example, older customers who routinely invest more than their millennial counterparts.
“Much of today’s products and profits are made by selling to today’s older, wealthier and more focused clients,” explained PWC’s Ajit Tripathi.
Not everyone wants to be a bank
“Big Tech” companies like Google and Amazon are already offering lending or payment apps, in effect delving into the more profitable aspects of banking. They are likely to continue to focus on “picking off” these key high-margin segments for now, rather than seeking to disrupt the core, expensive pipes and plumbing of traditional banking.
“The process of establishing a full-service bank is capital-intensive and time-consuming, and a competition-enhancing regulatory agenda is set to facilitate the cherry picking approach,” observed Clifford Chance’s Peter Chapman.
AI won’t replace people (completely)
Artificial intelligence (AI) essentially refers to a machine taking over a task that a human normally performs, such as extracting pertinent information from documents. AI used in this way can save up to 90% of cycle time and can also root out human error, but it is more challenging to train computers to complete tasks that require common sense. The real value of AI is to augment human effort, enabling elevated human expertise through more valuable time spend.
“We may well see more humans inspired to move up the value chain and create entirely new markets,” said Chris Withers from IBM.
Challenger banks have one big advantage
Most big banks are saddled with legacy systems and old data sets and need to re-engineer their database structures. Challenger banks are able to avoid those constraints and use FinTech innovation from the beginning. This allows them to be more customer-focused, offer services more quickly and package those services differently.
Our panelist from Tusmor, Fiona Archbold, is developing A Bank in a Box that takes FinTechs through UK regulatory application and authorisation with IT mobilization and operations on a cost-effective shared service platform. “The aim of white labeling is to make cloud banking a reality, letting you focus and reach customers wherever they are,” she explained.
Central bank digital currencies could potentially boost GDP
“Longer term, central banks could potentially issue digital currencies on distributed ledgers,” predicted Barclays’ Dr. Lee Braine. A monetary-financial model in a recent Bank of England working paper found that a central bank digital currency issuance of 30% of GDP could permanently raise GDP by as much as 3%, so the potential benefits are significant.
FinTech apps hungry for real quality data
Data continues to be a vital raw material in financial services. Many new innovative applications need sufficient quantities of timely and comprehensive data to simply work. Many of these apps could potentially transform entire segments but are limited if not redundant if unconnected to validated data.
Regulators as a force for good in FinTech innovation
Forcing British Telecom to lease its pipes to competitors led to the UK becoming one of the most competitive media and broadband markets. The result was new entrants, more choice and lower prices. Reforms such as Payment Services Directive (PSD2) and Open Banking APIs will similarly open up the financial services market to digital disruptors. While it is understandable banks fear to lose the all-important retail relationship, they still retain considerable advantages in terms of barriers to entry.
Special thanks to our Director of Innovation Enablement Victoria Silverman for hosting the event, our customers, partners and vendors – Peter, Ajit, Alexa, Lee, Chris and Fiona – for their insights and Nayeem for shaping the debate.
This post first appeared on the Thomson Reuters Blog