Summary
What this article covers in 30 seconds
- Boston Consulting Group identified limited investment in FinTech and RegTech despite cost-reduction potential.
- Bain & Co. states governance, risk and compliance can account for 15-20% of bank running costs.
- Accenture reported that only 3% of CEOs and 6% of board members at major banks have technology backgrounds.
- Celent reported that in 2014, 75% of bank IT spend supported old IT systems.
It’s clear that banks aren’t taking full advantage of advanced technology offered by RegTech start-ups. As Founder and CEO of my own FinTech company – Recordsure – you may think my view a bit biased, however it is clear I am not the only one…
Research from the Boston Consulting Group identified that despite the potential to reduce costs, there has been little investment in FinTech and RegTech.
Bain & Co. state that governance, risk and compliance can account for 15-20% of the costs of running a bank. With FinTech being a key driver of efficiency and cost reduction, its highly surprising that firms aren’t taking advantage of the benefits provided by FinTech.
But to first devise a solution, we must first look at the cause. In my opinion, there are multiple reasons why banks aren’t investing in FinTech, with the following being just a few
Steering the ship
Many years ago, a friend once compared the large financial institution they worked for to a ‘big ocean liner’ – powerful, domineering and highly capable, but incredibly difficult to change direction.
We see this challenge for our larger clients everyday. Nimbly instigating change where so many legacy systems and behaviours endure can be complicated and arduous, whether you are trying to change an embedded culture or rolling out new technology.
Event the smallest of changes, whether technological or otherwise can cause strain. Firms are weighing up whether the initial cost of investing time, resources and money is worth the ongoing cost reduction benefits, with inertia coming out on top time and again.
But, that’s not the only reason…
Experience is key
In my experience, a key reason why banks have been reluctant to invest in FinTech and RegTech is due a lack of technology experience at board level. A recent report from Accenture claimed, only 3% of CEOs and 6% of board members have technology backgrounds at the world’s largest banks. In the report ‘Bridging the Technology Gap in Financial Services Boardrooms’, author Richard Lumb states the problem lies in the fact that many boards do not have the adequate knowledge and expertise about strategy investment and how best to allocate technology resources.
Investment in FinTech is essential, according to Celent, in 2014 75% of all bank IT spend was on propping up old IT systems. Investing in FinTech systems could therefore allow for money to be spent on alternative resources, maximising a company’s efficiency overall.
Early Adopter Competitive Advantage
Firms that do not invest in FinTech and RegTech run the risk of being less relevant to their customers, providing a lower level of service and becoming even more inefficient. As few companies are investing in FinTech, those that do invest, will have a bigger advantage over those who don’t.
Frequently asked questions
Large financial institutions can be powerful and capable but difficult to redirect because of legacy systems, embedded behaviours and complex cultures.
Accenture claimed that only 3% of CEOs and 6% of board members at the world’s largest banks have technology backgrounds.
They risk becoming less relevant to customers, providing weaker service and becoming more inefficient.