A pertinent question was asked during the Q&A following my remarks at the CEB Financial Services Summit in Boston earlier this year: With the pace and scope of Digital Disruption 2.0, should banks invest in automating legacy processes, or should they skip trying to rewire anything and go straight to establishing fintech partnerships?
At this stage in the industry’s transformation, I believe there is no definitive answer to that question. While it is certain that the transition to new technologies will occur, it’s also true that if a lot of friction exists in a bank’s middle- and back-office processes, the preferable course of action could be to improve those processes vs. waiting for a perfect process value chain to develop.
In reality, balancing legacy systems and innovation requires a portfolio approach, based on what is often referred to as a “run better/run different” model. The “run better” aspect addresses the improvement of processes that are indispensable today, while the “run different” part involves the dramatic reimagining of certain process clusters. Executing on both paths is the challenge – and opportunity – that banks face today.
Another attendee at the CEB Summit asked about the possibilities of banks partnering, merging or forming other relationships with fintech companies. Given the nature of these innovative upstarts, I think the likelihood of such activity is high. Born digital, fintechs are small and highly collaborative. Without the burden of legacy overhead, they are very much open to partnering, especially with an organization that can perform certain functions and activities better than they can themselves.
For example, we launched a financial analytics platform involving two startups that provide slight variations of functionality. These companies are partnering with us because neither they nor we could do everything on our own to evolve the value proposition. Such collaboration across the fintech and banking spaces is highly encouraging and should continue to grow.
Whether a bank is undertaking legacy optimization or next-gen solution deployment, the job is going to require uniquely human capabilities, in addition to technology. My next post will take a look at the human dimension of financial industry disruption.