When banks finally improve their technology knowledge, they will not go beyond changing the front end. They make the button blue instead of green, or they make round edges on buttons instead of square ones. They think of the front end, not the back. If the bank were to truly innovate in its technology, it would dive deeper into the background and transform an ancient technological infrastructure that has remained unchanged for decades. Few today know how to work with old programming languages from last year, such as COBOL, so they are stuck on updates that detest Frankenstein.
Large banks do not innovate locally. Large technology clusters do not even innovate. They get new ideas and innovations, in addition to teams that have already done so. When they need new, undeveloped technology as part of their own technology portfolio, they sometimes talk to journalists about it to start covering it, which attracts the market. After that, the work of solving the problem begins. They see an opportunity and start raising money to try to realize it, while the big technology companies are watching. After a year or two, they bought the best company in space and made it part of the conglomerate.
The traditional Big Tech development strategy model is to offer truly successful startups where they can do so without risk. They pay a little more, but there is no risk of failure. All risk is borne by the start-up and the investors. Facebook, for example, bought Instagram in 2012 and WhatsApp in 2014 for precisely this reason. The acquisitions sparked serious concerns about Facebook’s “data monopoly”.
Financial institutions also use this method. For this reason, all major players have acceleration programs. They find start-ups that have ideas they might want to pursue in the future and give them certain resources. Then the big financial institutions buy the ideas and develop them for implementation.
About the topic: Banks should build infrastructure for digital assets before it is too late
If a large bank tries to implement a new technology internally, it may not work. The corporate structure is so rigid that it cannot adapt to new innovations woven into the bank’s current technology and protocols. Without flexibility and flexibility, a company cannot take risks when developing and using new technology. The corporate structure is not modernized enough. Commercially, ie collaboration, most of the necessary innovation is achieved through mergers and acquisitions.
Banks should focus on innovations in the financial technology world, especially those that ensure customers’ privacy and secure shopping. When a bank tries to buy products, it must also buy the company’s team and infrastructure. Thus, the bank will be able to change its core business gradually. There are already examples of this. In one alternative, the bank arranges secure purchases by processing personal information and transactions, while fintech engages customers and provides customer service.
On this topic: Cryptobanks will take over mandatory banks in 3 years – or less
The revised Payment Services Directive 2 initiative, often referred to as PSD2, is a European regulation for electronic payment services that aims to improve payment security and stimulate innovation in Europe. PSD2 divides the entire financial business into two parts: the first is infrastructure and security, and the second is the interface and innovative customer service. This is the best approach at the moment, but improvements will be needed in the future.
Micropayment services like Revolut, Monzo, N26 and others are evolving very fast. These start-ups are based on a traditional economic structure supported by banking licenses and payment service providers from their partners, and also include innovations from the world of financial technology. These digital banks develop competitive advantages and attract customers in a short time. This model works. The banks have banking licenses and funds, and provide security while they outsource customer acquisitions and customer service operations to run fintech start-ups. The same model can bridge the gap between banks and cryptocurrencies.
When it comes to modern innovation, where should banks focus? The answer is that there is not much user privacy in the heart of today’s technology that banks use. When we use the services of a bank, the employee is still working on our transaction history and receives more information than in our social media profiles. Who likes it when someone has access to such sensitive data? Probably no. However, banks are currently selling this data and information. In some jurisdictions, they may sell personally identifiable transaction information.