At a time when more than 80% of Financial Institutions believe their business is at risk according to a PWC report, disruption is uppermost in the minds of every Banking provider. Is Open Banking a boon or a bane, and would partnerships with Fintechs establish that symbiotic relationship for driving innovations? Aspire Systems caught up with a senior Fintech strategist to find out his views on the current state of Banking exploring topics such as Open API Banking, Fintech Collaboration, and Alternative Lending.
Alex Jimenez, is a Senior Strategist at Zions Bancorp. He leads the overall technology process for the office of the CIO at Zions. Zions Bancorporation is one of the nation’s premier financial services companies with total assets exceeding $65 billion. Below is Alex’s take on what is in store for banking.
What does 2018 mean for Banking?
Alex: 2018 will be another year of continued changes in the industry. Unfortunately, it’s taking the industry a long time to adjust to the changes happening, and the trend will continue. Many banks and credit unions are taking a wait-and-see approach, under the assumption that they can be fast followers. FIs that think they can quickly follow, when it takes over a year to do anything of any size in the industry, are only fooling themselves.
In the meantime, the top four banks (Chase, BofA, Wells Fargo, and Citi), and a select few, provide what seems like seamless digital and multi-channel customer experiences. While many Millennials say that they don’t trust big organizations, more often they choose these larger banks because of the perception of having better technology.
In contrast, lower tier banks, Community Banks and Credit Unions delay changes fearing integration issues with third party technology vendors and solution providers. The longer organizations wait, the more difficult the task of becoming digitally-enabled becomes. Their legacy core and back-end systems were built in 20th century technology that isn’t easily integrated with agile new systems. Open banking, 21st century APIs, AI, blockchain, and other technologies will be more important every day.
What is the main concern of banks going into 2018?
Alex: Aside from the usual concerns of attracting customers and risk management, security concerns continue to grow in the face of the Equifax breach.
One of the tools banks have against new disruptors is the trust that they have gained with their customers and the market. A security breach that damages that trust could be deadly.
What does Open API banking mean to you?
Alex: Barring regulation, Open Banking in the US is far in the horizon, if at all. The use of APIs on the other hand has begun and will transform the industry. Customers use mobile apps that can perform many functions. Banking apps are already tapping into this behavior. Banks that extend their apps with other solution providers and leverage their combined synergies to increase revenue will get ahead quickly.
Industry-wide FIs are still finding it difficult to standardize internal integrations, this is another opportunity for APIs. I believe that that will be the first stage of adoption of APIs. The second stage will be about publishing bank APIs and establishing a Fintech marketplace for their customers, providing it as choice-based value-added features after careful vetting and finding synergies. The third and very unlikely stage is US banks allowing third party applications to pull data from them through APIs. Risk and security concerns makes this last stage one that many of us don’t see happening anytime soon.
What do banks think about collaboration with Fintech?
Alex: Lately, banks and fintech firms find that they have complementary assets that could result in mutually beneficial relationships. Banks have the market’s trust and a large customer base that fintech firms have had a hard time to replicate. Fintech firms have innovative solutions that banks haven’t been able to develop. Partnerships would be ideal in such a situation. Unfortunately, due to regulatory concerns, most FIs see fintech firms as either vendors, acquisition targets, or investments. True partnerships are few in the industry.
That said there are various opportunities. For example, the robo-advisor space in wealth management is ripe for strong collaborations. Traditionally, investing has been kept to the mass affluent market and above. Fintech firms like Betterment, Wealthfront, Robinhood, and Acorns continue to show that the mass market is ready to take advice through automated solutions and PFM assistants powered by AI and algorithms.
What do you think about Alternative Lending?
Alex: To be honest, banks aren’t worried by these players. Correctly, many bankers point to the fact that these lenders haven’t gone through a downturn in the economy. We see some alternative lenders already having problems due to their lack of risk discipline. On the other hand, alternative lenders do bring great customer experiences. The bad news for alternative lenders that aren’t collaborating with banks yet is that customer experiences can be copied. Forward-thinking banks have made great strides, sometimes with the help of fintech firms, to provide excellent customer experiences.
Final Thoughts
Alex’s fears about Open Banking primarily lie in the state of integrations with 3rd party vendors that has to mature to a point of achieving the desired standardization rigor. It’s interesting to keep a watch on the kind of partnerships with Fintechs that banks are willing to take particularly in the machine learning wealth management space that Alex vouches for. With the rising tide of regulations that can spark both disruption and innovation, it remains to be seen whether legislation can play catch-up with innovation and if this uncertainty is further quelled to fuel this dynamic ecosystem.
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