The financial services industry is changing rapidly with the advances in digital innovation. Startups are popping up everywhere and apps allow us access to virtually any financial service that is available. In his talk on his research on the developments in fintech, associate professor Markos Zachariadis from Warwick Business School and a Fintech Research Fellow at Cambridge Digital Innovation, explains why recent regulatory and technological developments will have even more impact on the way in which banking is done and how consumers can benefit from future cooperation between banks and fintech startups.
Traditional banks have adopted some fintech innovations, but most digital innovations in the financial sector emerge because startups are able to think outside of the traditional and conservative frameworks. As with many industries, digital innovations are disrupting the traditional business models of banks. Dr. Zachariadis for example discusses that practically all the different services offered by large traditional banks can be done through fintech startups that offer these services in a better, faster, more efficient, and generally more pleasurable way. His point is illustrated by the figure below, from CB Insights, which shows that for any service that HSBC offers there often are multiple fintech startup alternatives.
© CB Insights – cbinsights.com/research/disrupting-european-banking-fintech-startups
While financial institutions are having trouble keeping up with all the developments, a recent regulatory change forces them to open-up to fintechs. The European Commission developed the Payment Service Directive 2 (PSD2), which will go into effect in 2018. One important idea behind PSD2 is to establish uniform payment processes throughout Europe, and stimulate the development of innovative online and mobile payment services. The regulation – among others – means that banks have to provide other organizations access to client informationfter explicit client approval of course. Providing access to client data generally happens through application programming interfaces (APIs), which in the context of banks allows third parties to have access to client data. A prime example of using client data is Bud (thisisbud.com). By bringing together information from numerous bank accounts of a client, Bud is able to create a personalized banking experience tailored for each individual client.
Markos Zachariadis presenting his research at KIN Research Group
An important challenge, Zachariadis explains, will be for banks and technology startups to collaborate as banks are losing ground in the financial industry. Consider for example that one of the largest providers of loans for small and medium-sized enterprises in the UK is not a bank, but the technology firm Amazon. For banks to stay relevant, they have to increase their innovative capabilities rapidly and learn how to collaborate with fintech companies. Because we cannot predict what the future ecosystem of banks, fintechs, and consumer will look like, it will be highly relevant for both academics and practitioners to closely follow, understand, and know how to responsibly cope with these different disruptions in the financial industry.
You can find dr. Zachariadis’ latest research paper, titled The API Economy and Digital Transformation in Financial Services: The Case of Open Banking here: https://ssrn.com/abstract=2975199
Dr. Markos Zachariadis is Associate Professor in information systems and management at Warwick Business School, and he also is a Fintech Research Fellow at Cambridge Digital Innovation. Please find more information here: https://www.cambridgedigitalinnovation.org