Start-ups: shedding light on banking technology

Banks continue to recognise the need to update and future proof their core banking systems, with recent research from the analyst house Celent showing that globally banks will be investing up to $10bn by 2017. However, at a time when banking technology budgets are under increasing pressures, it seems only right to question to what extent this funding is achieving everything it sets out to do writes Hans Tesselaar

Banks continue to recognise the need to update and future proof their core banking systems, with recent research from the analyst house Celent showing that globally banks will be investing up to $10bn by 2017. However, at a time when banking technology budgets are under increasing pressures, it seems only right to question to what extent this funding is achieving everything it sets out to do, writes Hans Tesselaar

Creeping IT costs are nothing new – it seems like we hear more shocking predicted figures every month. However, the recent numbers from Celent suggest that banks are increasingly feeling the cost and customer demand pressures on their IT systems – pushing many to consider core replacements. This all combines to suggest that banks are not currently getting enough bang for their IT buck.

More and more, we are seeing global banking players combine their investment strategy with a collaborative approach, as they team up with small start-ups that are driving innovation. Last month saw the launch of the application period for the second year of the Fintech Innovation Lab. The FinTech Innovation Lab in London is a 12-week program that helps early and growth stage financial technology innovators develop their products, while gaining exposure to leading financial industry executives.

Talking of the incubator project, Barclays’ chief technology officer Shaygan Kheradpir told technology site V3that: "The increasing role of technology in financial services is accelerating the pace and breadth of innovation and driving the kind of cutting-edge services which our customers and clients demand."

This is just another example of big banking players coming to accept the need to collaborate with, rather than compete against, the emerging fintech start-ups. The same can be said of the Level 39 space in Canary Wharf (home to the Fintech Innovation Lab) which connects technology starts-up with potential appropriate bank partners.

Naturally this forces us to question why it is that banks need to partner with small players – surely they should be dominating this space with their own highly innovative IT solutions?

Unfortunately, as regular readers of my blogs will know, banks no longer have the head start with matters of IT. The formidable core legacy systems may have been at the cutting edge of innovation in the 70’s, but decades of piecemeal upgrades and sticking plasters later, and existing technology is now more likely to be holding banks back than elevating them up. This is where working with small, nimble start ups, with an ear on the ground for new innovation and technologies, presents an increasingly attractive proposition for banks.

For too long financial services have been defined by banks wasting effort and budget on competing on back office technology, when in reality competitive edge comes with value-add and customer-facing services . This where collaboration should be encouraged over competition. Financial services are an increasingly crowded space, so rather than fighting wars that can’t be won, banks would do well to look towards emerging fintech start-ups as potential partners in innovation. The same can be said of their similar-size competitors – collaborating on back-office technology opens up opportunity for everyone to focus on innovation. It’s time to bring banking technology out of the dark.