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Can banks’ technology move fast enough?

By Credit Kudos, 29.05.2019

With large customer numbers and strong brand identity, banks have both an enviable market position and all of the baggage that comes with being a large organisation operating for decades. Analysts estimate that 10–20% of current UK banking business could be at risk of disruption from account and product switching. Partnering with technology-focussed startups rather than attempting to change things on their own can help diversify risk while requiring less investment in technology and organisational change.

Outsourcing R&D investment

Advances in machine learning have opened up new opportunities, but requires significant investment in a highly educated workforce and greater dependence on new technology. Regulatory changes dictate that banks make customer data available to authorised third parties. Although both trends present a threat, fintechs can turn them into opportunities. Credit Kudos performs detailed analysis on bank transaction data that the banks can find difficult to do themselves. We take on the burden of hiring data scientists, collecting the data and customer consents, and testing the latest machine learning research methods. The banks get the analysis they need to make better decisions without the investment and months of compliance approvals.

Legacy systems

Everything from out of date software to manual KYC processes creates risk for those pushing internal change. Banks are notorious for using the same version of internet browsers 4 years out-of-date. Resistance is often due to risk and the difficulty of coordinating change. Banks who do break through can see fantastic results: in Sweden, BankID has revolutionised how banks and customers use identity services, with innovation driven by a consortium of banks. By parachuting in technology built by companies unencumbered by old technology, teams can start using solutions that previously would have taken months to get approved and built internally.

Mitigating risk

Banks have the financial capacity to quickly build new products, but innovative solutions to old problems can get stuck in bureaucratic, compliance-driven internal controls. For example, Starling Bank allows customers to create joint bank accounts remotely using phone location services to ensure both customers are in the same room. Traditional banks could have easily built the same technology, saving themselves time and money and improving customer experience, but likely haven’t done so out of fear of regulatory uncertainty or months-long approval processes. Partnering with FinTechs can fast track adoption of new technologies without increasing internal risk profiles.

Mind the gaps

For banks, understanding the gaps within their product offering is the first step to identifying a fintech that can help. Collaboration takes the heavy lifting out of transforming their systems, enabling banks to maintain the speed needed to stay relevant in today’s market, while reducing risk, time invested, and costs. Our successful partnership with some of the UK’s largest banks provides insight into the banks’ willingness to look externally to keep pace with rapidly changing technology.