One of the goals of the Business Beyond Borders (BBB) initiative is to reach out to SMEs and Clusters in as many key sectors as possible. Utilities, Energy, Textile and Fashion, Hospitality and Technology are some of industries in which BBB has focused, or will focus on, in 2017. This week’s blog post brings you a relevant and interesting insight on Fintechs and their role in the state-of-play and the future of banking.
Recently, the renowned Brussels-based think-tank Bruegel organised a forum on Fintechs and the future of banking. The forum included experts as Digital Bank Santander’s CEO, DG CNECT’s Peter Zilgavis, and MEP Cora van Niewenhuizen. Fintechs are doing a remarkable job when it comes to innovation and some banks are following such steps as well. When banks buy or invest in a startup, they are closing the cycle of the research and development environment in Europe, allowing it to continue moving. However, banks should be encouraged to do this on a regular basis.
However, banks do not have as much confidence on Fintechs as desired and still see them as rather risky. USA- and London-based Fintechs in particular are the ones causing a greater feeling of mistrust among banks. This has to do with the fact that they are not using appropriate Application Programming Interface (APIs) tools to connect – which is partly due to legislative processes that aren’t as swift as companies would hope.
Most startups using Financial Technology do not apply enough efforts to protect information. This is known to be the general rule since the majority of startups neither have the resources nor see the importance of using proper secure connections such as APIs.
If that is indeed the case, then whose responsibility is it to implement APIs? The answer does not point towards a single actor, but rather to integrate efforts. EU incentives for banks to go digital, and for Fintechs to apply best practices on information security, are key. This would not only ensure a better relation between banks and Fintechs, but also significantly level the playing field for the whole European market.
Banks and many other industries are unwilling to change due to good performance – in retrospective, if see the need for change, they don’t apply it; but, to actually improve their achievements, they need to apply new technologies. For instance, banks need to start embracing cloud technology, which is no longer a novelty but a standard technology.
There is a need for different industries, but also for legislators, to speed up in terms of digitalisation in order to improve the EU market. Most advantages of digitalisation are attractive to citizens and legislation should take that into consideration: in short, it should aim to be innovation-friendly. This would make room for more opportunities and experiments. Overall, a forward-thinking mental shift, rather than just applying technologies which are already available, is needed.
Legislation is crucial but so is awareness. More awareness would bring about a more targeted promotion of best practices on information security, shed a more prominent light on privacy and personal information issues, as well on competition ones. The main goal should be to link citizens, private and public sectors as a way to boost technology benefits, and to find ways match successful startups with specialised banks.
Likewise, up-and-coming innovations – such as cryptocurrencies – should have a “honeymoon” period when they could be tested by the general public and perfected. Even though cryptocurrencies cannot be considered currencies yet due to their lack of VAT taxing, these need room to be explored and to understand their appeal to both sellers and costumers.
Bruegel’s forum has concluded that Europe needs to be cloud-ready through joint PR efforts, applying lessons learned in the past and providing for a better integration of Fintechs in the banking sector. This will be harder to achieve without an entrepreneurial spirit: one that is sustained by a principle-oriented base, is technology neutral, and focuses on actions. The opportunity to grab the advantages provided by change is right here: the industry needs to be more daring and just run with it.
 Bruegel, Fintech and the Digital Transformation of Banking, 2017.