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Future of Fintech Special Report

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RACONTEUR.NET FUTURE OF FINTECH 03 27 / 09 / 2017 /future-fi ntech-2017 Although this publication is funded through advertising and sponsorship, all editorial is without bias and sponsored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 3877 3800 or e-mail info@raconteur.net Raconteur is a leading publisher of special-interest content and research. Its publications and articles cover a wide range of topics, including business, fi nance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclusively in The Times and The Sunday Times as well as online at raconteur.net The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced without the prior consent of the Publisher. © Raconteur Media RACONTEUR MATTHEW CHAPMAN Freelance journalist specialising in retail, technolog y and marketing, he contributes news and features to national and business publications. IAN FR ASER Author of Shredded: Inside RBS, The Bank That Broke Britain, he was business editor at The Sunday Times in Scotland. CLARE GASCOIGNE Formerly on the staff of the Financial Times, she is now a freelance journalist specialising in City and fi nancial features. CONTRIBUTORS PUBLISHING MANAGER Jessica Kalbag PRODUCTION MANAGER Antonia Bolcas DIGITAL CONTENT MANAGER Jessica McGreal DESIGN Samuele Motta Grant Chapman Kellie Jerrard PRODUCTION EDITOR Benjamin Chiou MANAGING EDITOR Peter Archer DISTRIBUTED IN FUTURE OF FINTECH @raconteur /raconteur.net @raconteur_london C ollaborations between banks and fi ntech start- ups are on the rise as the two groups of companies overcome the mutual suspicion that characterised their early dealings and recognise the mutual benefi t of symbiosis. However, partly due to diff erent histories, cultures, priori- ties and expectations, collaboration is not straightforward. A survey by accountancy giant PwC found 82 per cent of banks, in- surers and asset managers intend to increase the number of partnerships they have with fi ntech fi rms over the next three to fi ve years. PwC partner and fi ntech head Steve Davies says: "The banks are looking at fi ntech as a diff erent way to drive change." According to Mr Davies, "every bank in Europe" is now running its own incubator or accelerator for fi n- techs whose technology it hopes to benefi t from, or else forging partner- ships with entities such as Innovate Finance to identify fi ntechs that might help them address specifi c business challenges. Digital banking commentator Chris Skinner says most current fi ntech-bank collaborations are relatively unambitious, focused on incremental change such as help- ing customers with their budgeting and auto-switching to cheaper en- ergy suppliers, rather than chang- ing the fi nancial system from the bottom up. "They're mainly focused around fi xing the ineffi ciencies of the cur- rent fi nancial system – things like customer on-boarding with 'know your customer' – with a focus on improving processes, reducing costs and enabling better customer expe- riences," he says. "But there is another sphere out- side this which isn't about collab- orating with banks, but actually trying to reinvent the banking sys- tem. The banks are trying to retro- fi t new technologies of distributed ledger and blockchain into their existing structures, but the genie is out of the bottle and there are a lot of other companies saying they can reinvent fi nancial services using technology." It seems, however, that many peo- ple in the fi ntech sector, who may originally have set their sights on disrupting, are happy to refocus on incremental developments. Profes- sor Markos Zachariadis at Warwick Business School says: "A lot of the people in fi ntechs are virtually kids. They thought they were going to take over the world until they were hit by the reality that banking is very heavily regulated and a slow- to-change sector." For banks, working alongside "young Turks" in the fi ntech sec- tor does not always come naturally. PwC's Mr Davies says most banks in the UK are very risk averse. "The view of fi ntechs is 'I'll build it and then I'll see what the regulations say'," he says. "But for the bank it is 'we're not going to do anything unless we can do it within the reg- ulatory envelope'. People in banks often have a jaded view of technol- ogy. Whereas, if you're in a startup, it is 'if we're not coding within three days there is a problem'." The banks' outmoded IT, with core systems dating back to the 1970s, can be a problem. Ewen Fleming, partner and fi nancial services lead- er at Grant Thornton, says: "Most UK banks systems are so old-fashioned they're only able to relaunch their digital apps once every quarter. If they're serious about emulating the tech fi rms, they need to be able to do that every day." The presence of silo structures and feuding factions inside banks, and a lack of tech-savvy directors on their boards, does not help either, says Mr Skinner. There are also issues around power. Bankers who fear fi n- tech guys are out to steal their jobs are generally reluctant to enter tru- ly equal partnerships with fi ntech players. Lukas Zoerner, founder of Lon- don-based fi ntech startup Mespo, says the banks' procurement de- partments can be a barrier. "The on-boarding process isn't adapted to younger companies," he says. "For example, some banks have a procurement requirement that you must show three years of accounts. That's clearly impossible when your company has been around for one and half years." In a Warwick Business School ac- ademic paper published in June, fi ntechs interviewed by Professor Zachariadis and his colleague Pinar Ozcan voiced concerns about the pace at which banks were working with them. In particular, there was concern about their slowness in ap- proving products and bringing them to market. Among the leading UK banks, Lloyds Banking Group is current- ly ahead of the pack in terms of its early-adoption of fi ntech and "open banking", and the new ways of work- ing this requires. The next best is Barclays, with HSBC and RBS seem- ingly the stragglers. However, one bank that is taking partnerships with fi ntechs to the next level is the digital-only startup Monzo, which received its banking licence in April. Monzo has the ad- vantage of being unburdened with outdated legacy systems and pro- cedures. It runs its systems in the cloud on Amazon Web Services. Phil Hewinson, an ex-Google and Facebook staff er who joined Mon- zo as head of partnerships in May, says the bank takes two approaches to partnerships with fi ntechs. "One is developing deep partnerships with specifi c companies. The oth- er involves building an API [appli- cation programming interface] to open Monzo up to developers, who could then start to build experienc- es themselves," he says. Essential- ly this means giving them a play- ground where they can develop new products and services in a relatively unsupervised way. When assessing prospective part- ners, Mr Hewinson says he focuses on how many engineers they have in their company: "If it's more than 50 per cent [of their staff ] that sends a powerful signal that they're a tech- fi rst company." Professor Zachariadis says col- laborations between fi ntechs and fi nancial institutions have turned out to be more complicated, cultur- ally and technically, than people originally thought. "Banks need to get better at on-boarding fi ntechs and the fi ntechs need to get better at working with banks – improvements are needed on all sides." He suggests banks must learn to collaborate better, become more willing to share data with platform partners, restructure internally, and become more agile. Working with the fi ntech 'genie' Richard Baker/In Pictures via Getty Images 82% of banks, insurers and asset managers plan to increase fi ntech partnerships over the next three to fi ve years IAN FRASER 88% believe the risk of lost revenue to standalone fi ntechs is a real threat PwC 2017 80% said the epicentre of disruption over the next fi ve years will be consumer banking Faced with technological disruption, banks are learning to collaborate with fi nancial technology startups, known as fi ntechs, but the collaboration is not always plain sailing COLLABORATION OLIVER GRIFFIN Based in Latin America, he writes for the i, The Economist and The Daily Telegraph from countries including Colombia, Honduras and Argentina. SHARON THIRUCHELVA M Writer specialising in culture and innovation, she contributes to The Independent, i-D, Vice and Forbes. Lloyds is a front runner in fi ntech adoption ASSOCIATION PARTNER SABUHI GARD Former fi nance editor of Yahoo!, she has worked for the Financial Times, Times Online, Daily Express, The Daily Telegraph and contributes to the Spectator Money blog.

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