How investment banks can respond to the fintech challenge

How investment banks can respond to the fintech challenge

With the world’s largest institutions facing an existential threat from new fintech challengers, all eyes are on the DevOps team and their in-house lab to drive their own innovation in response. However, burdened with a legacy network and massively complex and interwoven 3rd party systems, banks’ DevOps teams are fighting on two fronts.

Whatever statistics you look at, there is no doubting that the banking sector is being given a thorough shake-up by fintech challenges come at it from every angle.

  • 2018 saw over 1,700 VC investments in fintech firms, worth nearly $40 billion (CB Insights)
  • Last year in the US alone, S&P Global estimated that there was approximately $7.5 billion worth of fintech investments, of which well over $1.3 billion was specifically in investment and capital markets technology (S&P Global)

So it’s not just areas such as payments or remittance that have been disrupted. Capital markets have been similarly transformed by new entrants and new technologies – and incumbents have been slow to react.

“Armed with private funding, this set of companies is leveraging technology with the aim of automating, digitizing, and creating access to global capital markets.” (CB Insights)

How can investment banks respond to this challenge?

Well, according to McKinsey Panorama almost 80 percent of financial institutions have entered into fintech partnerships.

So far, so good.  But that isn’t enough to digitally transform their operations. This has to happen much closer to home, and it falls to the bank’s own Ops team.

Research by Accenture calculated that banks spend around 70 percent of their IT budgets on traditional IT services (such as maintaining core legacy systems) and only about 30 percent on non-traditional solutions related to digital transformation, such as cloud or data analytics.  What’s more, the same report estimates that “banks will need to aim for a 30 to 40 percent reduction in operating and distribution costs over three to five years, while funding infrastructure renewal and venture investments. This could result in costs and restructuring charges of $5 billion to $8 billion for a moderately complex bank.”

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