Finovate, also known as “ the Disneyland of fintech”, is consistently among the most important conferences in the industry. Last week, I spent some time at Finovate Fall 2018 which was — for a fintech novice like me — a crash course on the current industry insights.
Traditionally focused on fintech startup demos, Finovate has expanded to include panel discussions. My primary interest was to explore developments in digital financial services. So to answer the question ensuing post-conference: “What did you think?” Here are some highlights from my time at Finovate:
In a panel titled “Short and Sharp Duelling Debate: The future of Digital Financial Services”, the focus was the challenging collaboration process in bank and fintech partnerships, which largely stems from the structural differences between large banks and fintechs:
- Scale: Large financial institutions (FIs) have the advantage of distribution, larger balance sheets, and lower acquisition costs.
- Infrastructure: FIs are more experienced than fintechs in navigating the highly regulated environment. Although fintechs are often regulated, they typically do not have the same dedicated compliance budgets or teams as banks. FIs also have access to certain pieces of financial services infrastructure (for example, payment rails) that fintechs have to jump through hoops to access.
- Security: “To bank on” is “to trust”, yet only 26% of Americans strongly agree that financial services (both banks and fintechs) have their best interest in mind. However, when trust is lost, fintechs suffer significantly greater losses than banks. Hence, while banks may be able to survive a breach of trust, fintechs may be ousted.
These differences are supported by an Accenture and Partnership Fund for New York City report. When they asked startups and FIs going through the four key partnership phases when working together — prospecting, proof-of-concept (POC), procurement and implementation, they found divergent responses in those same areas:
- Scale: Fintechs cite the lack of budget, competition with internal rivals and sunk costs in legacy technology as the main bottlenecks for transitioning from prospecting to POC.
- Infrastructure: Financial companies are working more actively with regulators (60%) than fintechs (17%) to address regulatory concerns.
- Security: 60% of financial institutions cite regulatory, compliance or security issues as major stumbling blocks. However, less than a fifth of fintechs perceive such a problem.
Security continued to dominate the discussions at Finovate, with an in-depth look at cyber security and risk management. My takeaways underscored that both FIs and banks will need to develop real-time and robust data security and anti-fraud strategies.
Attackers are carefully curating customer information to generate a customer profile before making their attacks. From live person scamming to fully automated phone phishing, both fintechs and FIs will have to employ continuous compliance testing with their vendors and supply chain partners. On the other hand, customers may not understand the requirements for data protection, so equipping them with a clear understanding of what they need to verify for onboarding is instrumental. To effectively realize both user experience and fraud mitigation, a delicate balance is required between seeking information and feeding information.
While it is possible to crush a company, it is not possible to stop a movement. The challenge to FIs is their ability to innovate themselves. Conversely, in choosing to partner with innovative fintechs while keeping certain legacy systems, FIs will have to wrap or replace legacy systems one by one with better, faster fintech offerings. The productive reaction for both FIs and Fintechs will be to acknowledge their mutual dependence and be open to competing in a more diverse environment.