• Clare Walsh, Consultant at City-i


• 20.05.2016 02:30 pm
Fintech

London is the Fintech innovation centre of the world, and there is an inherent belief that these new start up firms are going to be the saviours of the broken and dysfunctional global banking sector. Right here, right now, everyone wants a piece of the burgeoning Fintech action - which brings to mind the immortal words of Del boy, the nations much loved cowboy trader - "Rodders, with a bit of luck if this goes well, this time next year we'll be millionaires."

Whilst on the surface, the new Fintech frenzy is intoxicating, and potentially game changing for the banks, the new service providers and for the early investors alike - is it really everything it's cracked up to be? Go back some 16 years, and to me, what's going on now feels a bit like the dot.com 'boom and bust scenario' we experienced in the early '00s. A time peppered with telephone number valuations based on no track record of success and with multimillion investment dollars available to anyone with a 'good idea'. Undoubtedly at the time some got lucky and cleaned up, but overall very few people really profited from that particular overhyped bubble.

Fast forward to today. Pick up every newspaper, tap into any social media channel, and turn on the TV and they are full of stories and sound bites evangelizing the 'amazing opportunities' and potentially mouthwatering valuations that the new world of 21st century fintech potentially offers. Sound familiar? My fear is that just like at the beginning of the new millennium when a plethora of new businesses were launched in a fanfare and then almost overnight failed dramatically, leaving many people badly burnt and out of pocket. All in all it was a bloodbath which pretty much plunged us all into a global recession. Have we learnt anything from that unhappy situation, or are we in danger of the banks, the vendors and investors blindly repeating the same mistakes all over again?

The much heralded Level 39, Accenture led, initiative in Canary Wharf has been aggressively promoting the advantages of the new Fintech firms for sometime now. Everyday across the world financial institutions are setting up investment vehicles or incubator funds designed to provide finance for the new players, and cash rich family offices from all four corners of the globe have also jumped onto the investment bandwagon. Added to this, the advantageous tax breaks offered, by the UK government, in the form of SEIS and EIS schemes to private individuals is further fueling the fintech investment frenzy. On paper, it looks fantastic, or is it? Just how exactly, does this translate into meaningful and profitable business relationships between the banks and the new technology players and also provide a reasonable return to the investor community? And let's be clear just as way back in the Dotcom days, quite frankly some of the ideas were completely nuts and did not have a snowballs chance in hell of ever succeeding, the same is true today for many of the new start firms. So buyer beware.

Consumers at all levels have never been so empowered and are demanding change, completely fed up with being being penalised for years of under investment or in some cases downright illegal practices by the banks. Trust had gone completely out of the window - and it will be a long and rocky road before confidence in the banking sector is restored, if ever. Actions speak louder than words - and the banks need to be seen to be taking action now. To address these negative perceptions many financial firms have embarked on global marketing and advertising 'charm offensive' campaigns, spending millions of dollars designed to convince customers that they really are ethical upstanding members of society. But one only has too look at recent examples such as the outrageous behaviour of the outgoing chairman of the supposedly uber ethical Cooperative bank, the shenanigans at Barclays under the tutelage of Mr Diamond and the tax evasion scandal at HSBC, to know this is always going to be an uphill struggle. While bad behaviour prevails, despite all the new rules and regulations - all the advertising spend in all the world will not change a thing until the consumer sees a positive change in terms of acceptable service capabilities, fairer commercial engagements and as importantly - respect.

It's no secret, banks desperately need to innovate in order to survive and prosper in the harsh new world, post the 2008 financial meltdown and are no longer enjoying their once impeachable monopoly over the business of banking. Blockchain, chat rooms, the rise of the smaller more agile challenger banks, the growing number of alternative payment service providers, not to mention global giants such as Google, Apple and Amazon, all these guys are no longer just nibbling around the edges, but are in fact taking bite size chunks out of a traditional and once protected banking enclave.

But the $640,000 question (taking inflation into account) is do the established financial firms have wherewithal and courage to make the wholesale changes required to stay in the game? And its not just about implementing new technologies, it's as much about transforming the traditional business models, as well implementing a complete overhaul of the legacy cultures and sharp practices which have dogged the industry for so many years. Arrogance is no longer tolerated.

Money is allegedly being poured into 'fixing' aged and constantly failing systems. RBS continues to be the poster child of broken infrastructure horror stories, with the likes of Nationwide and Barclays Bank not far behind. The inability of any financial institution to process vital transactions, such as salary receipts, standing orders and mortgage payments is nigh on criminal. And the standard response to these addressing these outages - is to allocate a few million quid to 'patch up ' the problem. But therein is the crux of the matter - this make do and mend attitude is about as useful as a chocolate fireguard . Whilst I am pretty sure there are some amazing transformation initiatives already in play - what are they and where are they happening? And why are they so secretive about what's going on? Job protection, not invented here, fear of change and sometimes downright inertia are all cited as potential reasons as to why change is so slow in coming. But there is a clear and very present danger that if the banks stay in the slow lane for much longer there may be very few jobs left to protect.

These days there is an awful lot of talk about transparency, but how does that work when most banks cast a complete shroud of secrecy over their internal operations. And how is that helpful? The continuing refusal to support the good work being delivered by vendors has always baffled me. User evidence is king, and in my long experience of this sector, most banks, before making any purchasing decisions always want to know who else within their peer group is already using the product or service, and sadly in the main they refuse to disclose. The excuse of not giving away competitive advantage just doesn't wash. Surely it's what you do with the technology, the robustness of ones internal processes and how one collaborates with the provider is actually the secret sauce of success.

Many of the start up organisations will not have live references to present, and those more established firms with satisfied customers face the same challenge. 
if this aversion to supporting third party providers persists, it creates yet another barrier to success, and just as we saw back in the dot.com day, far too many of these new smaller, innovative businesses who could help to make the changes so desperately needed will go under. And with them goes those hard earned investment dollars as well.

Which brings one almost full circle - is the Fintech investment frenzy really being viewed as a serious strategic opportunity? Are funds internally really being allocated to implement the innovative new service offerings for the good of the customer and shareholders alike. Can the new world vendors deliver against their promises? And will the banks really ever embrace the much talked about concept of openness and transparency?

Or is the sad truth they are just another 'get rich quickly vehicle' which will enable the banks to grab potentially massive returns without actually having to fundamentally change anything? My fear is that it's more of the latter. And so spare a thought for Poor Delboy and Rodders, and everyone else who invests, if the status quo continues, dreams of being millionaires by Christmas will always remain a pipe dream.