This is particularly relevant in financial services, where
legacy processes and technologies are often a hindrance to innovation and
Open banking and a move to ‘as-a-service’ models have given
rise to many new fintechs who are providing the shiny innovative capabilities
that customers want. Banks are increasingly interested in B2B fintechs to take
advantage of their new business models, quicker transformation and advanced
technology, so it’s unsurprising that the global fintech market is expected to
reach $332.5 billion by 2028.
However, most of the data driving fintechs’ capabilities
requires integration with legacy systems hosted by banks and other financial
services institutions. This can lead to several unique integration challenges.
Establishing a cultural fit
A primary challenge is the difference in culture and ways of
working. Larger banks are heavily regulated and have vast operations and
systems – far from fintechs’ nimble cloud-based approach – which inevitably
affects how these organisations work together.
Speaking at a recent KPMG panel event, Allan Woodcock,
engineering director at Lloyds Banking Group, explained the role that education
plays in solving this problem.
“Banks have a responsibility to educate fintechs on the
regulatory environment and how pervasive that is within a bank, as well as how
it can vary by product or division. Knowledge sharing helps banks and fintechs
to align on a common purpose and work at pace,” he said.
At the same event, Conrad Ford, chief product officer at
Allica Bank, mentioned the problem is that large financial institutions
typically want to get everyone involved with everything. He explained that
there is a perception that if many people are included in a decision, it is a
less risky one, but that is simply not the case.
He commented: “This leads to a culture where people do not
take accountability. Instead, large banks need small, cross-functional teams to
move things forward. This not only makes accountability clearer but speeds up
Technology as an inhibitor
On the technology side, data models are a key culprit for
causing incompatibility, as it is difficult for fintechs to integrate them with
banks’ systems. This ranges from defining appropriate IT service operations to
making sure the bank has the correct IT skills to implement and run the
Where fintechs frequently advertise ‘plug-and-play’
solutions, in reality the implementation process can be a painful one.
To smooth the onboarding journey so that a working solution
can be realised sooner, Ford argued for the end of the request for proposal
“RFPs are the worst way to choose a technology solution. The
starting point of selecting a fintech supplier is to ask, ‘does it do what we
want it to do?’. If it does, the chances are it will get through the
confirmatory due diligence that RFPs require upfront.”
He added: “Banks should focus on proof of concept and then
determine if there are any gaps that need addressing.”
Legacy systems are often a ball and chain for larger banks.
Their complexity and IT teams’ lack of understanding of older systems can be a
stumbling block when integrating a fintech’s technology.
However, legacy technology can also be viewed as an
advantage. Legacy technology offers a plethora of opportunities for working
with fintechs, according to Woodcock.
“There are ways around legacy technology. We have multiple
working environments so we can collaborate with fintechs without causing
security issues. Increasingly we are working more in our legacy systems with
partners because that is our opportunity space,” he said.
Balancing risk with value creation
Balancing risk and regulatory requirements without
disrupting the use of fintechs is another problem banks are grappling with.
However, modern ways of working, such as Agile, can remediate this issue.
Ford explained: “The way for banks to work best with
fintechs is to have small and empowered teams, who make little and rapid steps
so they can pull back when things go wrong.
“We have seen many high-profile system failures where banks
have attempted transformation projects, but a modern engagement mechanism can
prevent these disasters happening and create a strong partnership.”
Achieving effective transformation
According to our latest report, a record number of fintech
deals were made in 2021 with a total investment of $210 billion, and over 2021,
there was a rush in interest in fintechs able to help with digital
transformation activities, particularly from tier one banks.
As more larger banks seek to partner with fintechs to
deliver effective transformation, there are three questions these organisations
should ask to minimise the aforementioned challenges:
What is the problem that needs solving?
Is there a fintech that fits that space?
How can we align ways of working to proactively address
It’s true that fintechs have much more to offer to banks
than technology platforms, but only if these considerations are made at the
outset so the solution can be used in the right way. Without taking this
approach, transformation is destined to move at a snail’s pace.
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