Summary
What this article covers in 30 seconds
- Research suggests investment in FinTech and RegTech has lagged despite cost-reduction potential.
- Large financial institutions can be powerful but hard to redirect because of legacy systems and behaviours.
- A lack of board-level technology experience may slow strategic investment and resource allocation.
- Firms that invest early may avoid inefficiency and protect relevance to customers.
Banks are not taking full advantage of technology offered by RegTech start-ups. Joanne Smith notes that, as founder and CEO of Recordsure, her view may sound biased, but argues that she is not alone.
Research from Boston Consulting Group identified that despite the potential to reduce costs, there had been little investment in FinTech and RegTech. Bain & Co. states that governance, risk and compliance can account for 15-20% of the costs of running a bank.
With FinTech acting as a driver of efficiency and cost reduction, it is surprising that firms are not using more of the benefits. To devise a solution, it is necessary to look first at the possible causes.
Steering the ship
A friend once compared the large financial institution they worked for to a big ocean liner: powerful, dominant and capable, but hard to change direction.
This challenge appears regularly in larger clients. Change can be complicated and arduous where legacy systems and behaviours persist, whether a firm is trying to change culture or introduce new technology.
Even small changes, technological or otherwise, can create strain. Firms weigh whether the initial cost of time, resources and money is worth the ongoing cost-reduction benefits, with inertia often winning.
Experience is key
Another reason banks may be reluctant to invest in FinTech and RegTech is a lack of technology experience at board level. A report from Accenture claimed that only 3% of CEOs and 6% of board members have technology backgrounds at the world’s largest banks.
In Bridging the Technology Gap in Financial Services Boardrooms, Richard Lumb states that many boards lack adequate knowledge and expertise about strategic investment and how best to allocate technology resources.
Investment in FinTech is important. According to Celent, in 2014 75% of all bank IT spend was on propping up old IT systems. Investing in FinTech systems could allow money to be spent on alternative resources, improving overall efficiency.
Early adopter competitive advantage
Firms that do not invest in FinTech and RegTech risk becoming less relevant to customers, providing a lower level of service and becoming more inefficient.
Because relatively few companies are investing in FinTech, those that do invest may gain a bigger advantage over those that do not.
Frequently asked questions
Bain & Co. states that governance, risk and compliance can account for 15-20% of the costs of running a bank.
Large banks can be like ocean liners: capable and powerful, but difficult to redirect because of legacy systems, behaviours and the strain created by change.
Limited technology experience. An Accenture report claimed that only 3% of CEOs and 6% of board members at the world’s largest banks had technology backgrounds.
Firms that invest in FinTech and RegTech may avoid inefficiency, remain more relevant to customers and provide a better level of service than firms that do not.