Evolve or Die: Banks Must Embrace Technology to Survive
As the CEO of a fintech startup, I pay a lot of attention to how banks employ technology; but, sadly, much of what I see out there is how they are NOT using it.. Too many financial institutions are stuck in the past, doing business as if they are still operating in a pre-digital world — and they do NOT seem to grasp how that will make them a dinosaur in years to come.
Resistance Is Futile
So what is holding these financial institutions back?
A lot of it comes down to culture. Institutional banking has a history of being fairly rigid and slow-to-change, and many large banks still let their Compliance Departments run the show. Add to that organizational bias that privileges legacy systems and “the way we have always done things” over innovation and new investments, and you have a lot of resistance.
The sunk cost fallacy is the engine that fuels a lot of this inertia. Banks are reluctant to upgrade existing systems for fear of making their current systems obsolete. And comfort with the status quo makes them suspicious of new technologies like blockchain that could streamline their transaction processing and save hundreds of manpower hours that would otherwise be spent reconciling errors.
Still, the news is not all bad. Fintech companies are changing the way financial services do business and showing incumbent players what is possible.
You Need to Spend Money to Make Money
In this new era of finance-companies-as-tech-companies, adaptability and innovation are the de rigueur.
A recent report published by Celent shows that more financial services companies are hearing that message, with IT spending set to increase steadily year over year, reaching almost $300 billion by 2021.
While new technologies like blockchain and Artificial Intelligence (AI) increase efficiency across business operations, they also open up new revenue streams.
Leaders in the retail space have long realized that a compelling digital experience for their customers drives profits; the same is true in the financial services sector. From customer-centric interfaces to e-trading platforms, technology plays a big role in any bank that wants to stay in the game — and win.
Embrace Change or Be Left Behind
Evolution is the name of the game, even in a sector as traditional as institutional banking. Financial companies that view IT spending as an investment rather than a sunk cost will be the ones to leverage technology for robust business growth.
Those that do not will become irrelevant, wondering where they went wrong.