Citi Market Strategist: Fintechs Key for Banks’ Data Demands

“There’s a ton of really useful fintech solutions in terms of data analytics, data cleansing and data intelligence, which can help banks make sense of the data that they’ve been sitting on for a long time. This is actually quite important from an economic perspective, but also from an innovation perspective for using the data, knowing where the data is, and what the data does,” said Ruth Wandhöfer during a panel discussion at the ACAMS financial crime conference in Amsterdam.

Wandhöfer argues that banks don’t always leverage new technologies for data management, and that the key to employing these solutions and innovations lies in collaboration between fintech companies and the banking sector. 

“In the last five to eight years we’ve seen an explosion of ideas, new technologies, and companies developed by IT solutions,” she said. “All of those solutions are being designed to help the financial ecosystem, but, initially, there was a perception by several banks that fintechs are coming in and eating our lunch. But what we’ve seen is that fintechs have made a massive contribution to the financial sector, and we are constantly learning how banks and fintechs can move forward.” 

Citi created an accelerator program in 2013 and has launched several other technological initiatives, such as D10X, a Citi Venture program that allows the bank to test solutions within its internal processes. Accelerator programs are becoming a trend as banks allocate more capital for technological solutions. Even regulators are jumping on the bandwagon, with fintech sandboxes that allow companies to test their ideas within regulatory bounds. 

In the age of GDPR and Mifid II, handling, reporting, and storing data is a risky business, but not delivering quality data or implementing stringent data management procedures could pose problems for regulators and for firms in the future. Trusting smaller startups and fintechs with large quantities of bank data can be even riskier, suggested Wandhöfer, as doubt shrouds data transfer techniques, API security, and third-party sourcing. She said banks can mitigate that risk by selecting fintechs with a financial background or by hiring fintechs to work internally within the bank.

“Successful fintechs tend to come from the financial industry and know how the financial industry works and what the gaps are… and also come with a bit of background knowledge on how to manage banks [and] how the compliance and operation controls work. That’s a big piece, when you think about the risk that fintechs pose, especially when we talk about API and data demands,” she said.

For data solutions, legacy systems can slow processes down, and using fintechs that use artificial intelligence and automation is one way to speed things up. But some firms are reluctant to make the switch, because changing systems is often costly. Despite this, Wandhöfer suggested Citi is working toward internal shifts to new operating systems that allow real-time service and new digital processing.