Robin Dinesh

Market Analyst

October 19 2018

Incumbent Lenders Aren’t Prepared for Technological Innovation

Disruption is already underway in the banking and financial services sector, although banks have been slow to adapt to recent changes brought forth by the digital revolution. With new industry developments like Open Banking, data analytics and regulatory changes like GDPR, it is evident that the change is already in progress. This is also clear from the recent introduction of the Internet of Things, Artificial Intelligence, and Blockchain technologies in the operation of financial services.
However, traditional banking institutions currently lack the technological and human resources to withstand and successfully adapt to these changes. In 2017, an Accenture Strategy report, entitled “Bridging the technology gap in financial services boardrooms” surveyed the leadership of the 100 biggest banks in the world. The report found that only 6% of board members of the banks analyzed have technology professional backgrounds. 43% (47 of the world’s biggest banks) don’t have any board members with professional technology backgrounds.
Many professionals in the sector are unaware of the potential for innovation, and the dangers of stagnation. A study by the Gartner group found that, “76% of banks don't believe their business model has to change because of digitalisation.”
This figures are truly shocking and highlight a huge flaw in the business models of traditional institutions. If we consider the shift from paper banking to today’s “platformified” version of banking, it’s clear that digitization has already made huge changes to how consumers interact with their financial institutions. Call centres, ATMs and internet banking are all indicative of just how far banks have come. But the lack of banking professionals who are experts in technology highlight a key issue for incumbent financial institutions, which will limit the potential for future growth and development.
Traditional banks are missing out on a critical competitive advantage, and innovation is the only solution.
What do the changes brought about by digitization really mean? These changes are the effect of a new and growing demand from consumers of financial and information services. Consumers are getting accustomed to immediacy, and demanding it. And although it has become easier for customers to interact with banks through their digital portals, there is still much room for improvement.
Lending is just one area in which incumbent banks currently dominate, that is under threat of disruption. According to an Accenture study published in 2017, “Payments and peer-to-peer lending models are two Fintech success stories that stand out . The UK led the ‘alt lending spring’, and Germany also saw a large growth in challenger models in these fields.”
The ways in which traditional lending has taken place are being changed by the technological innovations of alternative lenders, and challenger banks. In an article for ITProPortal, Russel Poole, the Managing Director of Equinx, explained why independent banks pose a threat to industry incumbents: “These new entrants to the financial services market are dedicated to delivering an optimal digital experience through their online or mobile channels. By focusing on customer services - which they believe to be a key weakness in the propositions of traditional banks – they seek to grow market share by passing on their lower costs to customers and deploying technology to enable a digital banking service that is truly personal to each customer.”
Due the the regulatory maze in which customers and businesses find themselves when applying for a loan at a traditional bank, despite other innovations in banking, the lending process has remained long and burdensome. The lack of frictionless access to credit, combined with the shortage of technological expertise within incumbent institutions indicates a clear need for traditional banks to look to FinTech companies to address this discrepancy between supply and demand of innovative technology on the lending market.
FinTech companies, like Sqirl, have the right balance of industry knowledge in banking, and technological expertise to help incumbent institutions adapt to the challenges and changes of the digital age. The team at Sqirl is comprised of seasoned veterans in a broad range of financial and technological disciplines, from economic strategy and risk management to software development,
Sqirl has created the Financial Passport (FINPASS) to help facilitate an omni-channel, frictionless application and approval process for credit products, which can be implemented by banks with no changes to their existing operating systems. The FINPASS is a financial information profile which can be created by businesses and individuals, and be used by banks in performing compliance and identity verification checks quickly, efficiently and with reduced cost. This makes applying for credit products easy for the consumer, through a highly personalized and digitally optimized application process. It also creates a fast, accurate and secure way for banks to evaluate credit-worthiness that solves the regulatory challenges of the lending industry.
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