Learning from FinTech – Can we fail fast, and learn fast (Group view)
By Aymeril Hoang, Head of Innovation for Societe Generale - 2016
“Banks can learn about the latest technologies and creating good user experiences from FinTechs and FinTechs can learn about regulatory compliance, distribution and large scale processing from banks. Everyone gets something out of the relationship – banks and FinTechs alike.”
Although DevOps and Continuous Delivery are at the top of the hype cycle in the internet world of business unicorns and fast-growing startups, there remain important questions about its suitability in financial systems and environments with value at risk. How DevOps and Continuous Delivery tools and processes can be leveraged to support the high demand for product innovation and change while ensuring the security, reliability and integrity that online financial services require.
- Societe Generale does not consider FinTechs to be competitors; we try to engage with these companies at an early stage when we know both parties can learn from each other. They may become competitors, but the situation is more one of cooperation than competition. Realistically, a bank’s true competitors will always be other banks of similar size and activity.
- FinTechs have good ideas and good execution in terms of creating new products and better user experiences using new technologies. However, at some point they need access to the distribution expertise and networks of financial institutions. Distribution is costly, as is doing business on a huge scale, which is something banks do every day.
- There are very concrete ways in which banks and FinTechs can cooperate and at Societe Generale, we spend a great deal of time in discussions with FinTechs, investigating the areas of potential and opportunity. In order to meet challenges, financial institutions and FinTechs need to share as much information with each other and to understand how they both see the market. Sometimes these discussions will be with an entity that becomes a competitor, but there is more of a chance that a FinTech will become a partner for the bank. By getting to know FinTechs through these discussions and information sharing, we can explore the possibility of working on products and services together or when appropriate invest in or acquire the FinTech.
- The development of open source computing and open architecture has created a culture in which information is more readily shared between organisations in financial services. The founders of start-up companies are very open with us in terms of the information they share; there is no apprehension about sharing the details of their technology and also how they run their companies and the vision they have for their solutions. There is more collaboration and willingness to share information now than in the days when proprietary systems were more common.
- The proprietary, closed model of technology is dying. The global trend in the financial industry and other sectors is towards cooperation and collaboration. It is too costly to go at it alone on developments – the capital required is too high in the current environment. Financial institutions cannot compete with FinTechs in terms of the user experience that they deliver.
- There has been a change of attitude among FinTech companies in recent years. Many have come to understand how heavily regulated the financial industry is and how costly compliance is. They know that compliance requires expertise and investment and this is something that the banks have experience in and can teach FinTechs about. Also, distribution strategies are important and it is very difficult to get market traction for your products without a good distribution network. In Europe, most of the FinTechs will eventually come to the large banks to explore distribution options. Large banks such as Societe Generale can help FinTechs to test markets and to build trust among customers.
- By working with FinTechs, banks and other financial institutions can learn more about the latest IT architectures, leading technologies, open source products and APIs and agile methodologies that can bring products to market more quickly. In collaborating with FinTechs and sharing knowledge and ideas banks will also build up their levels of inhouse expertise in these new and emerging technologies.
- The challenge for banks is to cut through all the noise and hype surrounding FinTechs and identify the companies that are doing something that will be of interest to the bank. There are thousands of innovative start-up companies across Europe alone and it is difficult to filter out those companies that will not be successful. Venture capital investors have proved to be very useful to Societe Generale in identifying the FinTechs that are worth engaging with.