Closing the FinTech to FinServ Gap
Financial services firms have never been under more pressure to meet the significantly escalating changes that the market is demanding. Over the last decade, firms have been faced with regulatory changes such as the SECURE Act, the DOL Fiduciary Rule and Reg BI, changes in investor dynamics resulting from an aging population and millennial saving trends, competitive changes with new entrants to the market, and pressure to develop new solutions for student debt and holistic financial wellness. Add to this the need to continually position for strategic priorities, particularly in the current unprecedented economic and political times. All of this requires firms to adapt ever more quickly, to develop and adopt new capabilities and skills, and to form the right partnerships to succeed.
To say the industry is complex is a huge understatement. When changes occur, they are generally complicated, involve significant cross-organization collaboration and have difficulty balancing market urgency with the speed of actual delivery capability. The easy problems have all been solved. History is littered with transformations that were designed to address changes and position firms for strategic growth but produced limited results. Often this is a consequence of investment into modernizing legacy technology using dated corporate technology capabilities and change management efforts that have missed critical constituents. Firms are turning more and more to working with innovative solutions, but intent doesn’t always equal successful outcomes.
Power of Partnership
To recognize the power of large corporations partnering with small, innovative technology firms, we need to look no further than our current world environment. The recent introduction by Pfizer of the COVID-19 vaccine is a compelling use case of how large corporate giants can successfully partner with small firms to leverage new technologies with speed to market. Pfizer’s partnership with BioNTech resulted in the development of a vaccine using new techniques that were developed in record time. Pfizer’s ability to embrace a partnership with a small, innovative company provided new skills and learnings critical to the success of the vaccine development, and the impact was huge.
The financial services industry is not alone in this challenge, but other highly regulated industries are finding great paths forward.
When new and modern technology has been adopted in the financial services world, it has been done in pockets, resulting in narrow impact. Nevertheless, we should learn from this, as progress has been made using technology such as artificial intelligence, advanced data analytics, chatbots and attribute call routing, which demonstrates both the applicability of new technology solutions to financial services and the ability to maximize return on investment. While incremental progress is good, addressing the small problems leaves the larger ones looming.
When speaking with financial services executives, we hear of common perceived barriers and have observed some emerging best practices in making more confident, strategic leaps into their technology strategies. Trends we see among these firms are:
- Recognition that being a technology innovator is not core to their capabilities or their success and they are shifting strategies to be integrators of simplified, robust capabilities rather than building in-house.
- Moving from the perception that a lack of available alternative options creates barriers to change, to realizing that there are many strong options either available now or coming online soon. The true barrier may be the financial services firm’s (un)willingness or ability to consider and adopt alternatives.
- Acknowledging that they lack confidence in their organization’s ability to manage complex, strategic change well. Examples are emerging of maturing transformation models which are increasing the effectiveness of implementing new solutions.
Enter FinTech Firms
FinTech firms offer “leading edge” innovative technology solutions to automate the delivery and use of services in a lean, nimble fashion that financial services firms have quite frankly been unable to replicate. FinTech solutions and capabilities are a great fit for addressing some of the problems financial services companies are still challenged to solve. But do financial services companies recognize FinTech firms and their solutions as the answer to their problems? And do FinTech firms do a good job of understanding and solutioning in financial services? Unfortunately, many do not.
My Corporate Ally recently conducted an industry survey with executives at large financial services companies to gather their perceptions on the use and value of FinTech solutions to solve their problems and to help them meet strategic priorities. We found that a majority of the respondents were interested in innovative technology solutions.
A majority of respondents, 77%, were interested in solutions to automate the implementation process from end-to-end. Of that same group, 69% think straight-through processing of payroll and complex files is valuable. And 62% want to better utilize their data through centralization and digitization of unstructured data.
Yet, when these same respondents were asked about FinTech solutions to help with these problems, it became clear that they do not understand how technology solutions solve their problems, and only 8% felt these FinTech firms understand the complexities of the financial services industry very well. This disconnect of FinTech firms’ ability to demonstrate their very powerful solutions in the context of the financial services industry is a gap My Corporate Ally is very interested in closing.
Where is the disconnect, and how do we close the gap?
There are viable, thriving FinTech firms with innovative solutions to meet the needs of the world’s largest financial companies. Yet FinTech firms are frustrated with the lack of traction in penetrating these large financial services firms. So why are these companies not working together, and how do we get there? What are the barriers to success? Bringing FinTech and FinServ together requires three actions: recognizing the opportunities, creating successful partnerships and doubling down on organizational change management for both firms.
Financial services firms need to…
- Recognize tech solution opportunities – Financial services firms need to increase awareness of innovative tech solutions to address larger problems they are facing, as well as set the tone with the technology organizations to embrace these new partnerships. The strategic planning process is one logical step where they can assess what new options are available and viable.
Only 23% of the executives responding to our industry survey felt highly confident that they had a solid strategy in place to solve their priority problems like utilizing data strategies for growth and improving client interactions. Of these same respondents, only 31% felt highly confident that they had partners that could execute to their desired outcomes.
- Embrace new solutions – Innovative solutions can provide relief for problems that financial firms have been struggling with for decades. However, it is difficult for leaders to shift their mindset to embrace these new technologies and recognize the applicability to long-standing issues. The benefits will come to the firms who leverage the inherent advantages of incumbency – brand, customer data, loyalty, know-how – merged with the latest innovative technology solutions. Many financial services firms are realizing their value proposition lies in using competitive technology to enhance their brand value, rather than building one-off solutions internally which drain focus and dollars away from their true differentiators.
- Find partners, not vendors – Technology will continue to evolve at an incredible pace. Financial services firms that can view their FinTech contracts as partnerships and leverage this innovation will serve themselves well in the end. In some cases, it may take the successful bundling of two or more FinTech solutions to solve a complex problem, in which case it is imperative to have strong business architecture capabilities. As a partnership is formed, the two (or more) organizations can collaborate on additional solutions – even forward-thinking, next-generation ones.
FinTech firms need to….
- Contextualize solutions – It is imperative that solutions brought forward by FinTech firms show an understanding of financial services and the true value their technology brings to address the large, complex problems these firms face.
In our industry survey, 92% of respondents felt it was highly important that FinTech firms show their understanding of the complexities of the financial services industry and demonstrate this through contextually relevant solutions and concepts that demonstrate their value.
- Demonstrate viability – Equally important, 85% of survey respondents are focused on the FinTech firm’s ability to demonstrate how the technology solves their problems and not just how “cool” and advanced it is. Innovative solutions must be both understood and deemed as viable for financial services firms to consider investing strategic dollars. The nuances that make financial services so complex, such as regulatory changes, must be recognized and accounted for if solutions are going to be accepted.
- Partner differently – Once financial firms begin to partner with FinTech on innovative solutions, there may be additional applicability. By forging a partnership with their financial counterparts and gaining a better understanding of the challenges they face, FinTech firms will likely be able to expand their offers to help solve other issues the firm faces.
The Path Forward
If Pfizer can partner to create life-saving vaccines in record time, anything is possible – even tackling the large problems facing financial services companies. History will likely repeat itself over the next decade, and financial services firms will continue to face pressures and numerous changes. Increased mergers and acquisitions are already surfacing, firms are partnering together to offer new solutions such as Pooled Employer Plans (PEPs), and the challenging economic climate will likely persist for some time. The experience gained by working with over 50 major financial services corporations provides our team of entrepreneurs, corporate executives and industry thought leaders a unique perspective to understand where gaps to success lie and how those can be addressed with technology. With the fast paced development of innovative solutions, we believe now is the time for financial services firms to capitalize on the opportunity to close the gap with FinTech.