How The Challenges Of Fintech

Force Financial Firms To Find

New Expertise

Whats Happening In Fintech And How To Avoid Being Left

Behind
The financial services industry has traditionally been one of the most
technology-intensive industries. But the speed of technology change,
and the business developments this has fostered, has left many
companies even in financial services floundering and struggling in the
face of a rapidly changing landscape.

Whether you are a bank, an insurance provider, a credit card company,

or payment provider, technology is driving fundamental change in your
sector. Hedge funds for example are now poaching technologists from
Silicon Valley. As one financial headhunter recently stated, traders
used to be first-class citizens of the financial world, but thats not true
any more. Technologists are the priority now. Financial companies now
focus on hiring individuals with the technical and computer science
skills that will enable them to create the algorithms that underlie an
increasingly complex environment.

New Wave Of Agile, Digitally-Native Fintech Firms Challenge

Financial Services

The above dynamics have led to the emergence of what has become
known as Fintech, or financial technology companies. Fintech
start-ups, as well as a few incumbents financial providers, are today
characterized by an agile, data-driven analytics approach to financial
services. Companies include those such as StreetShare, which offers
peer-to-peer lending for small businesses, or TradeRiver which provides
an online platform for cross-border financial transactions.

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 Whitepaper | How The Challenges Of Fintech Force
Financial Firms To Find New Expertise

The emergence of fintech is also resulting in shifting competition for

traditional banks, with companies ranging from Klarna to Square, as
well as more established companies such as Apple Pay and PayPal,
challenging existing and mainstream notions of finance. This new world
has seen significant stakes being made: global investment in private
fintech companies totaled $5.7 billion in just the first quarter of 2016,
representing an increase of 96% compared to the same quarter one
year earlier1.

Although at the risk of overly simplifying a dynamic and changing

situation, we see three main areas of Fintech challenging existing
financial companies:

Enhanced data and analytics transform the financial experience.

The future of financial services will be all about data, and which firms
can best use data and analytics. Data will enable more relevant, more
proactive, and more predictive services. Meanwhile looking to the future,
financial executives need to ask how emerging technologies, such as the
Internet of Things (IoT), will drive improved data gathering and analysis.
The potential to collect ever greater quantities (and of better quality)
data about the actions of individuals (such as via smart watches and
other wearables) will transform the insurance industry for example. But
insurance providers themselves will need to change in order to collect,
store, analyze and interpret vast swathes of data (increasingly in real-
time), which represents a tremendous challenge, outside of traditional
areas of expertise.

Peer-to-peer cuts margins and profits of traditional banks. How can a

traditional company such as JP Morgan Chase compete with companies
able to lend faster, and at a lower cost, than they can? Companies such
as StreetShare use big data to improve their credit underwriting, to
determine who they can best lend to, and reach constituents ignored
by traditional lenders. They are also significantly faster. A loan request
for a small business may take just minutes compared to weeks for a
traditional bank.

New payment technologies create a vibrant field of providers. Apple

Pay and PayPal may be some of the better known examples, but there
are a myriad of companies, including Square which had its recent IPO,
which are emerging which promise to make it easier for customers to
make payments. Fintech start-ups, such as SumUp, put their traditional
competitors to shame with their focus on the mobile experience and
visibility into real-time networks. Meanwhile new technologies including

1Source: Pulse of Fintech, CBI Insights, Q1 2016

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 Whitepaper | How The Challenges Of Fintech Force
Financial Firms To Find New Expertise

Bitcoin and Blockchain are no longer fanciable thinking. Visa Europe

announced in November 2015, that it was exploring how blockchain
technology could be used for international remittances. Meanwhile
TABB Research have argued that the adoption of blockchain by capital
markets is a question of when, not if, and could happen as soon as
2016. Fintech has emerged as a blockchain pioneer, and other industries
will follow suit.

The above aspects of fintech help describe some of the core trends
playing out as we head through 2016. But underpinning much of the
success of fintech is a renewed focus on the customer experience. New
players such as Square have a very different approach to technology
and creating compelling user experiences, than their traditional banking
competition. For banks, they face the challenge of shifting from a
physical branch-model to a digital-first model, characterized by a
seamless digital interface and customer experience2.

Transforming old legacy systems and processes to becoming a digital

businesses is the major challenge facing financial organizations in 2016.
For young, digitally native organizations, this represents a much simpler
proposition. For those organizations with a hodgepodge of systems
(banks for example with a proud 120-year history) it represents a major
upheaval to business as normal requiring significant investment. As a
result of this upheaval, financial firms are increasingly looking to help
from external providers who can provide fintech development services.

In Light Of Major Changes Afoot, Financial Firms Look For

Technology And Agile Expertise From Partners

As the well-known financial expert, Chris Skinner, has been quoted

as saying, banks are fully aware of the threats and challenges posed
by fintech companies, its keeping up with them that is the problem.
In light of the fundamental changes which technology is bringing to
the financial services sector, increasingly these companies must look
outside of their own walls to find the specialist technology expertise
which can help them navigate this new environment.

2For example BBVA executives believe that just 5% of customer interaction in the
banking industry will be in branches by 2017.

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Financial Firms To Find New Expertise

Case Study: Innovating With Cardless Cash

A leading financial services organization was looking to

develop new ways for customers to access their cash from
an ATM. Belatrix was tasked with creating a mobile app that
would enable a customer to withdraw money from an ATM in
less than a few seconds using their phone, not a credit card.
With such an open brief from the client, how could we best
come up with a solution?

Design Thinking. Belatrix Software was one of the first

companies in Latin America to start using Design Thinking in
its engagements with customers. And it is actually here, when
a problem or goal is not strictly defined, that Design Thinking
is at its most powerful. It enabled us to wear the shoes of
ordinary people regularly using an ATM, and helped us to
come up with fresh ideas about what was possible. Belatrix,
together with the customer, were then able to iterate through
different possibilities, create prototypes to see what worked
and what didnt - and how to overcome challenges from the
technology, to connectivity issues, to the user experience.

The result was the development of a mobile application which

could be used instead of a credit or debit card to quickly access
cash so-called cardless cash. This concept was developed
via close collaboration with a nearshore development team.
The teams utilized two week iterative cycles, to ensure
the development team could take into account quick and
immediate stakeholder feedback. The result was increased
customer convenience (the time it took for customers to
receive cash went from 40 seconds to 10 seconds) and
increased security (by lowering the risk of the skimming of
credit cards).

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