Can Banks Ride the Surge of Fintech, Or Has the Wave Gotten Too High?
The roar of startups clamoring to break into the financial world is starting to approach deafening levels. That also makes it harder to hear the worthwhile voices among the mob.
Sorting out the cacophony was the subject of the “FinTech Barbarians at the Gates” MarketTech 2015 conference held on Wednesday in New York. The final panel, moderated by Matt Simon, a principal with event host TABB Group, focused on the rush of innovators trying to revitalize and disrupt the industry, and what financial institutions actually do in the face of proposed change.
Based on what the folks from Deutsche Bank, Digital Reasoning, Incapture Technologies, and Symbiont said, banks and other financial institutions want to see new ideas, but with more temperance than some other industries.
Panelist Nancy Selph (pictured above), director of strategic operations and innovation with Deutsche Bank, said her company announced in June it would establish innovation labs in Silicon Valley, London, and Berlin. Part of her job is to lay out a game plan for these labs, she said. Her organization serves as a sort of a fixer, matching up the needs at the bank with the supply of innovation from the startup ecosystem.
Weaving technology from startups into the inner workings of Deutsche Bank, a 145-year-old institution, can take some elbow grease. “A big part of what we do is cultural transformation,” Selph said. “How do we make sure the company is ready for that kind of disruption?”
Such cultural change can require getting executives, IT staff, and many other folks onboard, she said. Given the massive size of Deutsche Bank, introducing a startup as a new vendor of technology can take several months—a timeframe she wants to address so the bank can be more nimble.
“There is actually a history of innovation in banking,” she said. “We just seem to have forgotten that in the midst of regulatory matters.”
Plenty of startups are stepping up to remind them these days, including some from the Barclays Accelerator. Young companies often claim they can inject innovation back into the financial industry’s veins.
As more new hardware and software becomes available, though, there also comes a need to sort out this morass of technology, said Larry Leibowitz, CEO of Incapture Technologies. “There’s lots of startups, each creating bespoke data of some variety,” he said. For enterprise-size financial institutions that work with many different tech vendors, that can became a headache.
Regardless, some change may be inevitable as new fintech gains footholds and traction over time. For example, Mark Smith, CEO of Symbiont, said his company is developing a trading platform on blockchain technology, which is the underlying tech and transaction data for cryptocurrencies like Bitcoin.
He said the barriers to entry in the financial world have not made it easy to introduce such innovation. “It wasn’t just the fiefdoms of broker-dealers, or the regulation, it was the simple cost,” Smith said. “The tools weren’t available. What you were building was hard.”
Developing some types of fintech, he said, can be as difficult as creating a programming language like C++ from the ground up. Now that the foundation has been laid, Smith said, new technology for this market can be developed more rapidly and at lower cost. “You have new opportunities that couldn’t have existed a decade ago,” he said.
That includes applying machine learning to tasks that were once too sensitive to take out of human hands. CEO Tim Estes from Digital Reasoning said his company offers “cognitive computing”—essentially a software-based machine that reads—to enterprises. For instance, this can include reading all company e-mails to look for certain kinds of risk, he said, or analyzing feedback from the market for hedge funds. “Before, that was all intuition or art,” he said. “Now it’s science.”
For all the ballyhooing and cheers that fintech gets, of course, not every promise of new technology turns into something banks actually use. “In the late 1990s and early 2000s, so many companies came onboard [that] didn’t really have business models or a business need,” Selph said. Some startups might draw attention to themselves simply for the sake of novel software—but natural attrition will likely thin the wannabes out. “Those businesses will not stick around,” she said.