FinTech Threatens Stability of IT Systems for UK Banks

    September 6, 2016
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    By Per Bauer

    Replacing regulation as the chief concern of bankers, the FinTech wave approaching Britain has financial IT administrators rapidly shoring up ground. What challenges lay ahead, and how can the banking sector overcome them?

    Brexit, which has seen banks clamoring for office space outside Britain and resulted in deep budget cuts, is not the top concern of bankers. Even more fearful than the U.K.’s exit from the European Union are those small icons on smartphone screens and the technology behind them, which threaten to completely derail the English financial industry — or so many allege.

    FinTech (financial technology) is becoming a consumer-facing requisite for serious financial players worldwide. And because of its rapid development, FinTech is enabling digitally savvy companies — not just traditional bankers — to compete in an otherwise untouchable market. Although banks have the advantages of financial knowhow, established branch locations, and voluminous capital reserves, FinTech is putting serious strain on their IT departments.

    What does the entrance of tech-forward startups mean for the finance market, and what will it take for traditional banks to keep pace?

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    According to an Economist Intelligence Unit survey of 200 financial executives, FinTech has officially eclipsed regulatory concerns as bankers’ greatest existential threat, becoming a “potentially fatal risk [that] will be a severe test of banks' IT systems,” in the words of researchers. Responding rapidly to the changing technological needs of customers and, consequently, developing FinTech applications in short timeframes is an unprecedented challenge for the industry.

    By 2020, the bankers predict that technology, as well as outside tech competitors, will have an outsized industry influence: 57% believe that FinTech firms will see larger capital flows than traditional lenders, 65% expect peer-to-peer lending to become a standard platform offering, and 64% predict that the banking will become completely automated.

    It may be that extensive banking experience will hold less and less currency as time goes on, and startups are eagerly looking to exploit that trend. TechCrunch reports that one such company, the 18-month-old banking startup Mondo, recently became youngest U.K. company to have ever been awarded a financial license, confirming the fears of many traditional banking enterprises.

    On the flipside, many see new market competition as a good thing. In fact, U.K. regulators are actively trying to stimulate the “FinTech Revolution,” setting a 2018 deadline for banks to publish their standard fees and charges to third parties, enabling customers to compare services with FinTech apps, reports Reuters. As it is, just four U.K. banks provide 90% of all business loans.

    Companies Face a Common Challenge

    Traditional banker or not, the obvious challenge for any financial player will be to provide customers with effective applications at marginal cost. For that to happen, in an app that handles millions of users and their financial transactions, organizations need to have a firm grasp on their app’s performance. Customers love great UX, but what will drive them to competitors is slow response times or having their finances unavailable due to downtime.

    As Business Insider notes, there are numerous high-profile FinTech startups — attracting millions in seed funding — that nonetheless have shaky core business models, news that is surely nice to hear for banks. If banks want to stave off competition (or if upstarts want to increase their odds), they must closely monitor and track the IT infrastructures supporting their applications, ensuring that such initiatives provide the maximum internal value for the business.

    Despite all the flashiness of FinTech, the success of any individual organization will likely rely on solving relatively ordinary IT problems. It’s critical that app performance matches a bank’s hard-won reputation — but never should that performance have to break the bank.