The finance industry is evolving rapidly and the traditional financial services organizations are now facing a broad new range of challenges, with digital banks and fintech firms that can become a major threat or a fantastic opportunity.

At Difitek we worked with Futurice, a digital consultancy that helps organisations transform their business by bringing together complex software engineering and beautiful human-centered design, to create a white paper where we take a look at what some of the leading UK banks and financial service companies are currently doing – and what they should start doing – in order to ensure the best and broadest impact from new software solutions, innovative projects and customer-centric thought.

In an attempt to navigate the challenges posed not only by Fintech firms and new market entrants such as digital banks, but also by an unprecedented number of incoming regulations, most banks have set up ‘innovation labs’ or similar as a focal point of new technology-driven business development and product lines. But their track record in the industry is less than stellar. The typical lab intermingles the ‘intrapreneurship’ of ideas that have been developed in-house alongside Proofs of Concept developed in partnership with external startups and a programme of hackathons and networking events.

However, we often see banks investing directly into external Fintech firms rather than launching successful new products that have been developed from within innovation labs. Efforts to improve offerings across, for example; payments, customer experience (CX) design, use of blockchain, regulatory compliance and backend software have brought some serious investments to the likes of R3, Kabbage and WeLab. This kind of acquisition and investment is not going away, but what can banks do to ensure that it’s not the only source of innovative products?

There are cultural and organisational factors at work. Banks’ IT teams (and others) have traditionally been focused internally on supporting existing back office and operational processes, rather than being at the front line of pushing new business development through the creation of new products. They are often supported by large teams of system integrators and consultants whose interest is in long-term commitment towards legacy technology. This is a major structural reason for the difficulties seen in trying to get new ideas to market. Moreover, with the advent of PSD2, banks are under more pressure to understand where they really add value. New requirements, to open up their payment initiation processes and their customers’ data to third parties, combined with growing expectations for digital design and user experience, bring huge challenges and opportunities. We think that ecosystem strategies will dominate, by providing end users with services through specialized partnerships with vendors who are best in class at different things. This ultimately drives client value, but raises a requirement for the organization to adopt, manage and technically orchestrate these connections, which is difficult and costly without the right tools.

  • Customers’ expectations and demands are rising rapidly in step with the growth of connectivity
  • Banks can expect to experience yet more pressure to reinvent themselves as the digital-first economy matures
  • The early adopters and confident combiners of new tech, innovative services and collaborative mindsets will set the pace
  • It is no longer viable to use in-house technology for everything, as specialised Fintech vendors become increasingly more efficient as they scale
  • Specialist services provided by these vendors are becoming productized, but also commoditized, meaning that price-based procurement and the ability to switch between vendors is becoming increasingly more important.

Download the white paper to learn more about this – including practical case studies and some concrete opportunities and solutions for financial services organisations to keep up with pace and stay ahead of the competition. And get in touch if interested to join the club of forward-thinking businesses that already started innovating with us.