What Can Banks Learn From The FinTechs?

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My engagements with a number of global banks of various sizes over the past several months have been on one common agenda. What should be their strategy for Digital Banking transformation and what they can learn from FinTech innovation?  This is definitely related to the inflection point that the banking industry is today both from their own inability to drive change for rapid digitization and also to address the threat from non-banking firms.  This phenomenon is also being referred as an “Uber moment” in the banking industry.

In today’s highly digitized and connected world, several lean and nimble organizations are making profound business impact challenging the traditional banking models in domains such as Payments, Lending and Wealth Management. These firms collectively known as FinTechs or Financial Technology firms are disrupting the banking industry by dis-intermediating across a banking customer’s financial value chain.

While traditional banks continue to spend heavily on regulatory requirements and managing a longer running new product / service release cycle, the FinTechs are innovating at rapid scale and delivering capabilities with a delightful experience. Examples include Lending Club and Zopa in lending, Nutmeg and Weathfront in Wealth Management; WePay and Stripe for Payments.

In response to this, banks have been quite active in their own digital transformation journey by launching direct banking initiatives, launching  apps marketplace, conducting hackathons with their financial ecosystem partners including the FinTechs and also acquiring digital agencies or direct banks.  The past year itself has seen a number of hackathon events on a wide variety of topics such as API Economy, Blockchain and data monetization.


What can banks learn from FinTech Innovation?

Banks will continue to evolve their capabilities both internally and through external ecosystem collaboration in support of their digitization agenda.  I have listed below 3 key actions for banks to learn from FinTech Innovation, which was also recorded in a late 2015 video for IBM’s Academy of Technology Video series.



  1. Simplify – Established banks, typically have a fairly sizable technology and operations organization to support a huge inventory of applications, infrastructure and processes that limit their agility and flexibility in delivering new services.   Simplification of the overall IT and Operations will help banks to not only become more lean and agile but also redirect the cost savings for digital transformation initiatives. Banks with heavy investments in their core banking systems must look at modernizing and selectively replacing domain capabilities with best of breed SaaS solutions only if modernization is not an option. Simplification efforts must be further accelerated by simplifying the business and operational processes aligned with their digital transformation focussed customer experience journeys. This will help maximize the impact and value for both topline growth and bottom-line optimization.
  2. Integrate – Banks will need to become an active participant both as a consumer and provider of financial services in a sharing economy ecosystem that includes their customers, partners and also FinTech providers.   This will be an architecture led transformation to deliver an Open technologies based integration platform focused on driving agility and speed of integration. The core components of the integration architecture will be built leveraging a combination of API, microservices and SOA services based on functional and non-functional requirements. With such an integration platform, banks will be able to externalize its core products and service offerings through API enablement, while also exposing its customers to services from external marketplaces.
  3. Scale – As banks simplify their applications, processes and infrastructure platforms, they must define a target Hybrid IT architecture with a Cloud first principle. This would require addressing the “how to cloud” first before deciding on alternative target platforms. Migration of the simplified application, processes and infrastructure to the private and public Cloud platforms must be addressed based on economic value and where needed banks must also work with their local regulatory bodies in increasing cloud adoption.  A DevOps led continuous delivery framework along with agile development principles is a must across the Hybrid IT footprint to scale the software development lifecycle (SDLC) in to a multi-speed SDLC.


The above 3 actions, supported by organization and cultural change aligned to a target operating model are essential to elevate a bank’s capabilities for delivering digital innovation at scale while also creating a platform for regional / global growth.

I am interested in hearing your thoughts and your organizations experience on FinTech Innovation.  In my next blog I plan to go deeper on the architecture model for next generation banking.

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IBM Distinguished Engineer & CTO at IBM

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