Banks and Buy Side Find Bringing Fintechs In-House a Major Challenge

The pace of technological advancement is rapid—this is not a secret. But when you couple that advancement with the explosion of startup fintech companies now dotting the market, it makes planning and budgeting for the future that much more difficult.

Stewart Carmichael, chief technology officer at asset manager Schroders, said that one of the things he has learned in this new environment is that “time horizons have changed” and that you have to readjust your thinking for how long you intend to use that shiny new fintech tool.

“If you’re working with startups, you may be using that provider or solution maybe for as short a period as two-to-three years before the industry catches up or someone else comes along with a significantly better product,” Carmichael said. “If you go into it with a ‘legacy’ view that you’re making a technology decision for the next decade, you’re probably going to make a mistake. You have got to be far more nimble and agile in terms of bringing new technologies to bear, but also then retiring them when they’re not fit for purpose. Your investment horizon is probably much shorter than it used to be.”

Lucien Foster, head of fintech strategy and partnerships at BNY Mellon, echoed Carmichael’s sentiment. And for banks, that equation might be trickier.

The sell side has been known for letting the tech sprawl get out of hand. Now with more options to choose from, that can create a dangerous proposition for banks.

“One thing that has to temper [the buy] approach is that part of the problem at banks historically has been this vendor sprawl, where solutions have been [brought in] on a point basis in individual business units and you end up with 30,000 vendors doing something like 10,000 different things, and that doesn’t make a lot of sense,” he said. “We want to avoid falling back into that trap.”

Both executives were speaking at this year’s North American Innovation Summit, held in New York.

Get the ‘Buy In’

It’s been said so many times that it’s now a cliche, but part of building a successful fintech strategy is that you need to have senior buy-in, in order to champion bringing in a startup whose long-term benefits might not be fully known. There’s a simple solution to this issue, Foster said—find a “money” champion.

“They need to want to make the change and make the effort to bring the technology in-house and use it,” he said. “What we found is that few things focus the mind better than a client saying, ‘I will pay you to do that.’ That’s why we focus our efforts on client-driven needs, problems, and interactions. That’s where we get the stakeholders to engage.”

Peter Tshalis, managing director of digital distribution and technology at retirement fund TIAA, asked a question of those in attendance: How did mobile become successful? Today, it might seem obvious, in that it’s easy and gives us near-unlimited freedom. But at some point companies—and this happened first outside of finance—had to embrace it, and they took that first-adopter risk because of two reasons: it increased customer interactions, and it also proved cut costs massively. It’s the proverbial win-win scenario.

“Did a banker like me want to go out and learn the complexity of image capture and processing those files? No. I’m a banker. I don’t want to be an image processor,” he said.

But you can’t stick your head in the sand either, he said, noting that it’s now imperative on all firms in the finance sector—buy or sell side—to have a complete understanding of the marketplace.

“You also have to do a lot of buying and building to develop an expertise, so that when you see a flower in the desert that has survived the rigors of the environment, you can run over quickly and pick it,” Tshalis said.