Published in Swiss Made Software vol. 5
Fintech is booming. Technology companies are taking over markets that were once the exclusive domain of established financial institutions. In order to keep pace with these changes, banks need to welcome IT as part of their core business.
Facebook is looking for a Head of Financial Services. Meanwhile, Ali Baba is a few steps ahead: its financial department, “ANT Financial”, not only manages 93 billion USD in funds, but recently also launched an online bank. What the two companies share is a clear focus on financial services. And they are not alone. Fintech is a global trend. In 2014 alone, the volume of investments tripled, and we are seeing an increasing number of start-ups positioning themselves in this space here in Switzerland, too. Swiss banks have gone on a purchasing spree in an effort to keep pace with these changes. But that is not enough. The effect of fintech start-ups on established Swiss institutions is still too small, while the technological advantage enjoyed by the giants that have recently stepped into the financial market is growing. Legacy systems and outdated development methods are holding the banks back.
Replacing legacy systems comes with considerable risks and costs. This leads to long-term, expensive and risky projects with minimal visibility, that are of little interest to business decision makers. Businesses prefer to invest in new, visible features.
People are now looking to IT for answers to the legacy problem. IT experts, on the other hand, are asking themselves whether big business is really aware of the fundamental need for investment. This, in turn, makes business think that IT is just too complex, too expensive, and cumbersome. A cultural vicious circle.
Increased expectations when it comes to development methodology are equally problematic. Without automated testing, each and every release is expensive and requires a lot of time, and best practices such as continuous integration and deployment cannot be put into practice. But these are precisely the practices that give innovative fintech companies their speed and agility.
Both the cultural and technical problem are best solved through co-operation, ideally with companies that have already internalized the concept of continual innovation. But that, too, can only be a further step in the chase, because markets are globalized and fast-moving. Today’s customers have no desire to wait for a product or service. And so they will turn to innovative fintech solutions, where they exist. The institution and its reputation fade into the background. It is digital availability that matters. This market is in the process of being taken over by IT-centric, agile companies. To compete in this competitive environment, established banks must accept IT as part of their core business, dig into their pockets, and make the investments needed to succeed.