Financial Services Panel Discussion Summary

Share this post:

Prakash Pattni, Managing Director, IBM Cloud for Financial Services, EMEA reflects on a vibrant discussion hosted at IBM London which explored the challenges and opportunities facing fintechs and banks as they look towards the new year, with senior leaders from Lloyds Banking Group, Starling Bank, Innovate Finance and Scribe. 

As another transformative year in banking and fintech ends, it’s a good time to take stock of where the industry is now and where it’s heading. Recently I was fortunate to be joined on a panel discussion by Adam Jackson, Director of Policy at Innovate Finance, Kirsty Rutter, Fintech Investment Director at Lloyds Banking Group, Rob Cossins, Co-Founder and CEO at Scribe, and Sam Everington, CEO of Engine by Starling Bank, to discuss the big challenges and opportunities facing the industry.

What became clear is that fintech is still considered one of the UK’s most dynamic sectors, with new business models, novel collaborations and innovative services emerging all the time. But economic headwinds, including high inflation and high interest rates, are impacting funding, putting a dampener on the sector’s post-COVID recovery.

While fintechs have developed deep specialisms and banks are keener than ever to work with them, the panel believed that fintechs with the most relevant offerings will keep thriving amid an industry consolidation.

Yet, despite challenging conditions, there will still be big opportunities for fintech in 2023. Banks are not showing signs of slowing their digital transformations – the appetite for innovation as they modernise further looks set to grow. As will consumer expectations for faster, easier, more relevant services.

Trending areas of growing importance to banks and consumers, such as sustainability, fraud and financial crime, and the increasing focus on modernising the mid- and back-office systems of financial institutions, will present some of the biggest opportunities for fintech to meet demand.

But change – especially in one of the most highly regulated industries – is rarely easy, and key challenges and new risks need to be addressed by banks and fintech in order for them to collaborate more closely and fully seize the opportunities in front of them.

Removing friction between bank-fintech partnerships

As Lloyds Banking Group’s Kirsty Rutter noted, the UK market has an abundance of fintech: “it’s like being in a sweet shop – there are so many options to choose from. So both the opportunity and the challenge is, what fits?”

To get that fit right, in Kirsty’s view, it’s important that banks and fintechs know their strengths. “It’s about finding others in the ecosystem who are brilliant at the thing you aren’t brilliant at but want to be, then working together.”

Being part of an ecosystem involving fintech, other technology providers and financial institutions is a strategy banks are increasingly adopting to progress their digital transformations and get new products to customers faster. However, these partnerships face friction points from strict regulatory compliance and security standards that fintech must meet in order to work with banks.

Fortunately, technology-based solutions are helping to remove this friction, as Rob, Co-Founder and CEO of fintech start-up Scribe, notes: “Our biggest challenge as a fintech is building trust with these institutions over time. This is becoming easier because there are interesting things happening with hybrid cloud and data platforms that are integrating across the two. That makes it much, much easier to engage with these regulated institutions because some of that risk is reduced.”

Hybrid cloud platforms have indeed helped to ease collaboration for financial institutions. Particularly industry cloud platforms like IBM Cloud for Financial Services, which comes with in-built security and regulatory compliance controls. As banks modernise further, they’re realising the value in having built-in controls already in place, which they can leverage to develop customer-facing innovation and products in collaboration with fintechs.

As Kirsty puts it, “I don’t think it’s necessarily about tech. It’s about identifying the problems you need solutions for and enabling this through technologies.”

Deepening modernisation of core IT architecture

We’re also seeing this mindset being applied when leaders are making architectural decisions based on what environment – on prem or in the cloud – and which infrastructure type fits best. There’s more awareness from leaders that it’s not a question of whether to use cloud or mainframe. It’s about making the right choices about how to use both strategically in a hybrid cloud model to achieve business outcomes such as speeding up innovation, reducing costs and the environmental footprint and boosting security.

In tandem, there’s a shift in focus from modernising the consumer-facing, front-end of the business to deepening modernisation of the mid- and back-office end, for more powerful transformation. This shift has proven fruitful for core banking platform providers, such as Engine by Starling, offering solutions in this space.

“I think the technology challenge the banking industry needs to get itself over for the next five or 10 years is really sorting out the core – getting end-to-end, event-based architectures right down to the bottom of these organisations,” says Sam Everington, CEO of Engine by Starling.

“Most banks are still at the cosmetic layer of customer experience and wrapping what is still a 40-50-year-old batch system that’s running underneath…and there’s only so far you can really push the customer experience and allow things to be personalised.”

A hybrid cloud platform allows banks to develop and deliver the kinds of hyper-personalised experiences their customers want by tapping into their vast data sources and leveraging the power of AI. Adam Jackson, Policy Director at Innovate Finance, sees this as key to empowering banking customers: “More and more powerful use of data and AI combined with open finance will help give people the tools to manage the whole of their finances…The ability to combine different sets of financial data will enable that consumer to be far more in control of their overall financial picture and make better decisions.”

At the same time, as technologies like AI become more prevalent in the industry, regulatory bodies are expected to increase oversight of how these are being used. Rob cautions that “if you can’t track through what your technology has done from source to output then that’s a problem for a bank. It’s easy to lose sight of that, either as a bank doing AI on its own or as a tech company selling into these large, regulated institutions.”

Securing the industry ecosystem

Inevitably, with more customer data being created and used to improve services and increasingly complex digital supply chains being created from expanding ecosystem partnerships, fintechs and banks are dealing with heightened vulnerability to cyber-attacks. Looking forward, it will be essential that fintech partners do not introduce systemic risk to their supply chains with established banks – especially as regulatory oversight grows.

Sam notes that “all the big breaches at retail banks in recent years have been through some part of their supply chain”. The more complex and disconnected a supply chain is, the more vulnerabilities it will expose that attackers can exploit. Fortunately, more leaders are becoming aware of this and realising that a hybrid cloud model combined with a Zero Trust approach and AI-powered security tools are key to combatting today’s threats.

As Adam observes, payments is an area of particular vulnerability, as the growth in real-time digital services opens up new risks.

“The faster the payments system, without further action, the more potential for fraud. We’d like to see a far more joined up approach across tech platforms, financial services, regulators and crime prevention agencies. It isn’t just about the fintech or the financial provider but actually it means everyone who’s part of the ecosystem to play a part.”

The consensus is that in 2023 we’re going to see more partnerships between banks and fintechs alongside evolving regulations and security threats. All of this will increase friction points that we need to address to make these ecosystem partnerships work. As we move into the new year, I look forward to continuing our work with financial services business to help remove these barriers to collaboration and de-risk the ecosystem through our industry cloud platform and partnerships with financial institutions across the region.