Traditional finance firms know they must innovate to keep pace with fintechs – but pervasive risk aversion is holding them back, according to the first-ever World FinTech Report from global consultancy Capgemini.
Published on 27 November in partnership with LinkedIn and banking industry trade group Efma, the report notes that risk-averse cultures – combined with budgetary constraints and ‘business-as-usual’ corporate strategies – are hindering the ability of long-established institutions to meet their clients on the cutting edge.
More than 40% of executives polled for the report said that culture was the biggest obstacle to progress, with one noting: “If you are a big bank and you have got 100 to 200 years of history, revolutionary changes are very hard because you’re putting all that on the line.”
Legacy systems also came under fire, with more than 28% of respondents saying that their firms’ attachment to well-worn infrastructures is dampening the emergence of innovative solutions that would appeal to tech-savvy clients.
“Though legacy systems are widely recognised as being inflexible,” says the report, “few organisations are contemplating replacing them, given the cost and risk.”
As such, it explains, the “burdens and demands” of running institutions in their current, inefficient forms “are causing innovation to sputter across the industry.”
Almost 24% of executives cite the sluggish pace of buy-in from top management as the primary barrier to fresh approaches, with “the links between innovation and profit difficult to discern” in the case of newer technologies.
“Innovation is… hard for institutions to accept, philosophically,” the report points out. “As a result, the industry has sought generic, one-size-fits-everybody banking experiences – even though customers now favour having an element of control over their financial relationships.”
Another aspect of that conservatism, it notes, is that “most financial institutions operate on strict return-on-investment principles, and do not look favourably on technologies that do not provide a clear payback.”
One respondent pointed out that, to stir a wave of innovation in finance, “You only need one fintech company to come up with a different business model, where they say I will make my money in a completely different way.”
With that in mind, the report recommends: “One of the most concrete ways to move forward in implementing a fintech strategy [in institutions] is to put executives with strong technology backgrounds into leadership positions.
“Such executives are necessary to deploy advanced technology – seen as central to fuelling innovation.”
On that very subject, it adds: “Executives agree almost universally (89.5%) that big data and analytics will have an impact on their business and operating models, mostly by helping them to improve the customer experience through more personalised service.
“Also top of mind are cloud computing, automated advisory solutions (robo-advisors), internet of things and blockchain, with more than half of executives citing these technologies as having strategic importance.”