Fintech has been making solid progress in financial services lately; according to Capgemini’s latest World Fintech Report (h/t Business Insider), 59.2% of traditional firms are currently developing their own in-house fintech capabilities, while 60% of them are partnering up with fintech firms to beef up their edge.
In fact, roughly 80% of the finance executives surveyed said that their companies already have some sort of fintech strategy in place, but, oddly enough, only 10% of them said that their strategy was effective.
Why is that the case? Here are three reasons why, as per Capgemini:
Risk aversion. The biggest reason why financial services firms aren’t getting any results is their rabid attachment to the status quo. As one executive said, “if you are a big bank and you have got 100 to 200 years of history, revolutionary changes are very hard because you put all of that on the line.” Centuries-old institutions don’t want dudes in hoodies millenialing up the whole place, they just want to show clients that they dudes in hoodies, hence the total lack of payoff.
Budgetary constraints. Efforts to keep things looking “business as usual” are ridiculously expensive for banks, especially in the recent years’ ultra-low rate environment. A consequence of this is less money to invest in innovation. As Hardeep Walia, founder and CEO of Motif Investing says: “a lot of budgets are focused on keeping the lights on, keeping the system running. And there is actually very little budget on long-term, big-bets of innovation. Hence, a lot of it is incremental innovation.”
Legacy systems. They may be considered unwieldy, constraining, and even a pox on ingenuity, but very few firms are actually willing to replace their existing systems given the potential costs – and risks – of doing so. Like the prior two, this is totally understandable as you’re basically asking them to change, change, change while they do the already-strenuous job of operating the company today.
So there you have it. The top three reasons why financial institutions still suck at fintech.