• October 20, 2015

Banking in the Idea Economy: Why Big Names Are Borrowing From FinTech Upstarts

By Mike Nefkens, Executive Vice President, Enterprise Services, Hewlett Packard Enterprise

At a time of unprecedented upheaval in the banking industry, more than $25 billion has been invested in the 4,000 or so FinTech companies responsible for most of the disruption.

Their digital fingerprints can be found everywhere. New technology is giving rise to ceaseless information flows. New channels and new markets open instantly, leading to new business models. This is the new world in which century-old banks operate. At Hewlett Packard Enterprise, we call this the idea economy and it’s impacting every industry.

Changes Ahead

Today we’re releasing the results of an HPE-sponsored survey of 100 senior bankers* and 100 FinTech executives** that was conducted by the Economist Intelligence Unit (EIU). Respondents were asked for their perspective on the state of retail banking. Among the findings:

  • Over two-thirds of bankers perceive FinTech as a serious threat to their market position.
  • Despite this, a majority (54 percent) also believe the industry is ignoring or paying lip service to the challenge.
  • As a result, almost four out of five banks remain in the planning or pre-operations phase of countering the FinTech threat.

Meanwhile, FinTech providers have made it so that anyone with cash can purchase a debit card at their local drugstore and get most of the benefits enjoyed by those who carry a credit card. Peer-to-peer lenders arrange loans between those who have money and those who need it. Automated platforms offer cheap retirement investing. Traditional banking has become optional for those of us willing to make the leap. Yet few are; FinTech accounts for just 2 percent of today’s global banking market.

Considerations for the FinTech Bank of the Future

In fact, according to the survey, neither FinTech executives nor bank executives expect FinTech start-ups to simply replace banks. Instead, we’ll see an integration of the two. Banks will acquire or invest in FinTech start-ups and also change their business models to better compete with them. This poses a variety of interesting business challenges, not the least of which is integrating new technologies with the complex, industrial-grade systems that banks have used for decades to ensure compliance and data security.

Indeed, FinTech’s rise is due in part to the willingness of FinTech executives to press ahead and create entirely new infrastructures that are built for speed. They innovate faster as a result, bringing new services to market as quickly as employees create them. Creativity thrives in these dynamic cultures, in which business models are supported by flexible, responsive technology.

Bridging the gap—adding flexibility without sacrificing security and stability—won’t be easy, though respondents tend to agree that the effort is worth it. Over 80 percent of the FinTech executives surveyed see trust, stability, and regulatory and risk management expertise as enviable strengths that traditional banks possess. Similarly, 80 percent of FinTech leaders said their lack of legacy infrastructure gives them an advantage, while 75 percent of bankers cited existing technology as a constraint to both growth and competitiveness.

The Best of Both

The responses suggest a theme: In an idea economy that prizes speed and technical dexterity, combining the systems that enable core business processes and regulatory compliance with the end-user facing services that customers, employees, and partners expect will be key to success.

At HPE, we believe the future of banking will require a hybrid infrastructure. By bridging the gap between traditional IT and private managed and public cloud environments, we are helping our customers seamlessly integrate the processes that are foundational to their business with the applications that will drive growth today and in the future.

For more on how to drive your organization to thrive, check out this article on Enterprise Forward, 3 Years, 3 Things—What Financial Services Sector Executives Need to Know.

*For the purposes of this research, banking/retail banking is defined as retail banking plus lending to small business.

**FinTech is defined as new entrants that use Internet-based and mobile technologies to create new or superior banking products. FinTech firms range from start-ups to the bank product offerings of large tech firms like Google or Apple.