The FinTech Industry - A Renovite Perspective
In November we hosted our first industry roundtable with a small group of IT Directors from across Europe. Financial institutions are all either launching new propositions or adapting their systems to the new requirements brought about by the rise of fintech and the pandemic.
The roundtable focused on the challenges faced by those responsible for their organisations’ IT strategies, and how they were planning to overcome them. You can read the main points arising from the session below.
If you’d like to join our next session in the new year, please contact our Chief Operating Officer:
Chief Operating Officer
The Main Risks Facing Financial Institutions
§ For neo-banks, security risks are a major concern. Many are building their systems from scratch and they are using in-house proprietary microservice architecture in the cloud. There is now major investment in protecting these systems.
§ There is a forecast of 10 to 12 million attacks globally per year, half of which are expected to be to be targeting the financial services system.
§ While there is a desire to develop and launch speedily, security is the main consideration for deployment decisions.
§ In the past, IT suppliers were less concerned about security because they were typically supplying on premise code into data centres. The customer took responsibility for the operating system and everything else. Now deployment comes in the form of containerized solutions and suppliers are providing the complete stack to the customer, and using some open source software.
§ This is a relatively new experience for software companies in the payment space, and security has been enhanced to provide state-of-the-art defence against a range of risks.
§ Both FIs and neo-banks are choosing suppliers that can take more of the responsibility for regulation.
§ One issue for neo-banks is the implementation of one rule for all institutions. This can be an onerous challenge and the benefit is minimal for small players. For example, open banking regulations state that even small players must be able to provide transaction data. However, the work required to fulfil this requirement yields very little benefit. The suggestion was that there needs to be a tiered approach otherwise this requirement will act as a barrier to innovation and new entrants.
There is a growing risk for large financial institutions regarding the knowledge within their teams. This comes in many different shapes.
§ Both new entrants and established institutions face challenges in finding the right DevOps engineers or data scientists as these roles are brand new in the market.
§ Established institutions have a problem retaining staff, as the lure of working in fintechs and creating new technology can be more powerful than staying put just to fix legacy technology.
§ It's becoming increasingly difficult to find people of the right quality and profile in both new entrants and established institutions. For established players, finding people with modern skills who also have the domain knowledge of legacy systems is a real challenge.
§ The pandemic has opened up new opportunities and challenges. Remote working means you can recruit people from anywhere in the world. However, if the preference is to have tech teams working together from the same location, recruitment can be more difficult as the talent pool is demanding more flexibility and the opportunity to work from home.
Speed of change
§ One of the daily challenges all institutions face is to deliver at the pace of the market. New trends, new products and new services all have to meet the expectations of increasingly demanding business and retail end-users.
§ There was universal agreement that the landscape has changed and the need for frequent technology changes, tweaks, launches has increased. Technology is under pressure and increasingly relies upon new systems that can manage this change effectively.
Regulation, products and IT architecture
There was consensus that more regulation was coming, specifically in response to product innovation.
§ Buy Now Pay Later (BNPL) is going to cause institutions major credit risk, and will result in more regulation. Institutions could be trying to make credit decisions on people with multiple instalment payments with BNPL providers. These are not published to any credit agency. That's very opaque and, naturally, that's where regulation can help.
§ This means more regulation will be coming which will have a big impact on IT systems and credit scoring.
§ The cloud is an accelerator for new business but only with completely cloud-native solutions and fully agile processes. However, there are major benefits as those rejecting the cloud will find themselves struggling to keep up.
§ The cloud allows organisations to be very nimble and agile when launching new products. Financial institutions can deploy solutions very quickly, learn from initial results, then make adaptations to maximise opportunities or react to competitors’ responses.
§ New entrants agreed that because they work in the cloud, they can create new services through their app. However, one of the barriers was the release cycle by app platforms compared to the pace they can move at. Releases in neo-banks are not occurring multiple times per day but can be held up.
§ Some repetitive jobs for development teams are now being automated. Activity that would have previously taken a couple of days or maybe even a week is now condensed into hours because of what new cloud-based technology can offer.
§ Having good a QA function is really important. Many providers are now automating tests in the backend, but now they’re moving that process into the front end too. This enables ever greater speed in the release cycle.
§ Even though the tools have improved, there are still organisations who have not changed how they operate. Test automation is a great example – some operating card programmes still test with plastic cards in Test Labs. They are not utilising the sort of exhaustive regression testing that uses scripts.
§ Software providers, and those who have built their own systems, adopt a new way of working. All the code is stored in the cloud and created with an automated test framework from day one. They operate ‘test-led’ development where everything can be driven through a simulator.
§ Automation enables faster launch of new products. However, some institutions haven't brought their governance processes up to date, and are unable to take full advantage of new cloud-based technology. This may reduce the perceived ‘operational risk’ but increases the commercial risk of being left behind.
§ Even the new entrants and neo-banks suffer from cultural problems. For example, the risk appetite and open-mindedness to new, more effective approaches of CFOs or CROs from traditional banks could be influenced by their past.
§ There was agreement that the successful new players in the banking industry, whether in Europe, Asia or The Americas, are those setting up completely new infrastructures and cultures to support them. Otherwise, the old ideas act like a handbrake upon the new ones.
Renovite – About Us
Renovite Technologies transform mission-critical payments systems using twenty-first century cloud-native technology and thinking.
If you want to learn more about how we are helping financial institutions adapt to the latest challenges, or if you want to be part of our next discussion, please get in touch with me.
Chief Operating Officer