Moving from concept to production: FinTech comes of age
CLS’s Alan Marquard explores the potential for new technologies to transform financial services as we know them.
Innovation has always changed how financial services are structured, provisioned and consumed, but the pace and extent of innovation today is enabled by technology that has the ability to dramatically transform financial services as we know them. Regulators, policymakers and financial market participants are seeking to answer the many questions presented by FinTech: what is it, who is it, how should it be incentivized, developed and used and how should it be regulated?
The pace and extent of innovation today is enabled by technology that has the ability to dramatically transform financial services
Although there is much talk of FinTechs versus incumbent organizations and who will succeed first in delivering major technological change to the market, FinTech is not an organization type. In reality, new, disruptive ideas in financial services are being incubated by large technology companies and the well-funded innovation centers and labs of banks and their consortiums - organizations that do not fit the stereotypical image of the garagiste FinTech start-up. The primary question is not where the technology comes from, nor even always what the technology is, but rather how disruptively you can apply it to businesses.
The rise of FinTech has been accelerated by business model and value chain challenges and inefficiencies – many existing ways of doing business are simply not working. However, new technologies are unlikely to transform the market until they are translated into solutions to business process problems. That translation involves a deep knowledge of the business processes, the ability to integrate with existing processes and platforms, and for really important activities such as those currently undertaken by FMIs, oversight, governance, credibility and trust. The full potential of FinTech in critical applications will only be realized when those firms developing new and innovative technologies join with organizations that have experience of running and maintaining resilient technology and operations at scale. For that reason, numerous organizations and consortiums that had approached financial innovation from a technology-first perspective have reached out to experienced market players like CLS to collaborate. As more small firms are moving out of the sandbox into the bigger playground, we expect to see more partnerships across technology firms and traditional financial services providers that can make a proof of concept a reality. Regulators and policymakers should consider taking steps to encourage and facilitate this type of collaboration in the marketplace.