By Shannon Harris, Senior Research Executive, CeFPro.
In the past ten years the financial industry has been revolutionised by multiple technological advancements. Undoubtedly the landscape is unrecognisable and several areas of business have been improved and enhanced. The demand to keep on top of the technology curve continues to grow as many look for the next big thing.
In addition the next twelve months are set to be especially important as we see a new wave of technology taking flight. Areas like payments, blockchain, artificial intelligence, machine learning and crypto currencies are set to be top talking points for 2018. With any new form of innovation there are several questions to be answered, including a review of the benefits and potential risks. This is an incredibly exciting time for the financial sector as we see increased investment within technology and a drive to become more innovative and sustainable. It raises the question of what the financial landscape might look like in ten, twenty or even thirty year’s time.
In light of this The Center for Financial professionals has conducted extensive research to explore emerging advances in technology and innovation and the impact on the financial sector. Speaking to over sixty senior industry professionals provided a rare glimpse into multiple financial institutions and their concerns, challenges and opportunities. Below are some of the main areas raised as the top topics/challenges for 2018;
The ability to comply with regulators whilst remaining innovative and up to speed appeared as a top challenge for many industry professionals. It seems there is a battle between enhancing the business and regulatory compliance, with many left asking how to balance the two and run an effective financial institution.
“I think a key challenge on the regulation side, it’s the fact there is a lot of new technology and new market business models that aren’t necessarily tried out fully yet. You need to get the right balance there and the regulator is sort of in the middle, they’ll face challenges in just adapting to that new type of business models that come from that new technology.”
“I think one of the topics on many people’s radars at the moment is the amount of regulatory change that is being undertaken and is continuing to happen. Even when you hear a lot of press around how the regulators are looking to pare down and remove some regulation. But how does this all fit in with technology and updating the business, how do they work together?”
“The regulators seem to be very quiet when it comes to some new forms of technology. I’m not sure whether this is because they don’t know enough about it. But there does need to be more communication from them on what is and is not acceptable, and what technologies can impact compliance”
Another key challenge surrounded PSD2 and open banking. As we are now post-implementation many questions have been raised around the potential impacts of the standard, and what it means to be fully compliant. Undoubtedly as this is new territory for many financial institutions it would be helpful to share consensus and best practice. Finding out what some firms are struggling with may help prevent future issues early on.
“With open banking, even though banks should be compliant by now, if you look at what’s happening and what’s the current status of the changes, they are not yet fully developed. Definitely boiling down into the topic of what does it fully means to actually fully implement an open-banking system, and what other countries will do around PSD2 and opening their banking services.”
“It would be helpful to see what are the first results and implications of the PSD2 now we come to the area of application of the directive. So it has to be seen what are the effects of the directive on the market for example”
“The obvious big one is around open-banking and the kind of development of API’s and the different routes that the banks are taking. Particularly the impact of that on the range of business models that are likely to emerge across kind or newer banks and older banks.”
And lastly another key area which was mentioned on several occasions was the impact of FinTechs on the financial industry. FinTechs are companies which have flourished over the past ten years, and we are now seeing more and more FinTech start-ups. But it raises the question of what impact does this have on traditional banking models. So what are the pros and cons of collaborations with FinTechs.
“I think some of the opportunities created by some of the FinTech start-ups are always good to see, it’s good to see what they’ve been doing and how they’ve been getting over the same challenges. And thinking about what we can learn from that or how we can integrate some of that capability within bigger organisations.”
“I think particularly if FinTechs are going to take-off through open banking and PSD2, there is going to be a lot more players using the data belonging to the existing banks. That opens obvious weaknesses that will need to be rectified.”
“FinTechs could pose some threat to certain parts to banks but I also think they work with the banks and will also sell their product to the banks. When you’re looking at the P2C FinTech model, payment providers or aggregators may pose some threats but banks still have an advantage given their cost model and FinTechs are self-funded.”
In conclusion the research above highlight just a few of the top challenges and opportunities facing multiple financial institutions across Europe. Although many firms work in different capacities and have varying levels of investment within innovation, the technological landscape is rapidly growing in capacity. As we move forward it now raises questions of how to best develop innovation, how to comply with regulatory expectation and how to enhance industry collaboration. The coming twelve months are going to be a very exciting time as we watch the industry continue to evolve, and await the next big technological advancement.
To celebrate this The Center for Financial Professionals will be hosting our highly anticipated Technology & Innovation Risk Summit 2018. Which will be taking place on the 25-26 of September in London. The Summit will offer an exclusive platform for the industries finest to discuss, debate and connect over the latest advancements.