Page 50 - Pay Magazine s2014

finance & strategy
Fintechs Are from Mars, Banks Are from Venus
Fintechs don’t realize what they’re competing against. For me, I’m competing with other digital banking vendors, of course, but
it’s banks’ other projects and priorities
with clear value that take priority.
—Glen Fossella, Urban FT
consider banks as partners rather than competitors. Banks are judged on compliance, so ntechs selling to banks have had to step up to banks’ third-party vendor over- sight responsibilities. A few big settlements will turn people
into believers.
Paybefore: We’ve been putting a lot of responsibility on ntechs to understand banks. Do banks have a responsibility to under- stand ntechs?
JD: They do—for their own survival. As a banker, I need to understand the tech available so— consistent with bank strategy—
I can identify potential solutions.
Paybefore: Every day, we read articles about how ntechs are making banks obsolete. Yes? No?
GF: The idea is comical. Banks have well-established brands, infrastructure, money and custom- ers—plus the compliance and risk management know-how; ntechs have a steep curve to climb. And, really, what’s the sense trying to replace the existing infrastructure? Fintechs may cherry pick niches outside banks’ core competencies, but they won’t replace banks;
it’s not as easy as it looks.
Banks must evolve, but the com- petition is other banks—those that understand changing con- sumer wants and are adapting— and work with ntechs to ac- quire the solutions to address these changes.
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Paybefore: Other root causes of the ntech/bank disconnect?
JD: I’d add that ntechs often aren’t able to bridge the gap between what they know and what the bank knows, which stands in the way of a proper dialogue between the two.
GF: Exactly. And, getting back to metrics, ntechs typically don’t understand banks’ strategic ob- jectives; therefore, they don’t understand the enterprise-level metrics. Knowing what moves the needle enables providers to connect what they o er to what banks need. Fintechs need to learn to connect these dots for their solutions.
JD: Here’s another—banks’ leg- acy core processing systems.
At some point, these banks simply must change their environment— rewrite the core or move to a
new processor that’s not legacy-bound.
GF: Also, ntechs don’t realize what they’re competing against. For me, I’m competing with other digital banking vendors, of course,
but it’s banks’ other projects and priorities with clear value that
take priority. As a seller, I’ve ex- perienced the e ect of a bank’s compliance burden. A few years ago, for example, we were well into the sales cycle when the bank closed down the project because literally all IT resources were redirected to compliance.
Paybefore: I’d never thought of regulatory compliance standing between a ntech and making
a sale.
JD: There’s no question that the regulatory pressure of the past six years or so—following the nancial crisis—has debilitated some banks’ decision making. Similar to Glen’s experience, one large U.K. bank I’m familiar with has devoted 100 percent of its tech resources to compliance. If all your resources are devoted to compliance, you’re not considering ntech proposals.
Paybefore: Banks take reg- ulation seriously. Do ntechs?
JD: Fintechs, generally, have matured in their attitudes toward regulation, especially as more