Fintech – startup companies offering innovative financial services — are often touted as a major threat to established banks, but, says Laura Crozier, global industry director, financial services at Software AG, it is the 'bigtech' companies — in particular Amazon, Apple and Google — they should fear most.
"Definitely the fintechs will eat away at the soft underbelly of the banks, but the banks will buy the fintechs and 10 years from now the heads of the fintechs will be the heads of the banks," Crozier said. She was speaking with Computerworld on the sidelines of the Sibos banking and financial services industry conference in Sydney earlier this month.
"The fintechs have changed the pace of innovation, but they have not really taken market share. The big threat is bigtech: Amazon, Google and Apple. Amazon is the one I keep my eye on the most." Crozier said.
"In many ways these companies have been sidestepping into financial services without taking the plunge, but now with the partnerships they are seeking to strike they are not trying to hide it any more.
"That is where the threat will come from. And these organisations are agile, they are digital-first."
As an example Crozier cited an Amazon service in India: "When Amazon is delivering a package they will take cash and deposit it into an account that the customer can then use to make their next purchase.
"Amazon will do lines of credit for manufacturers that are producing good to be delivered to Amazon, and will use those goods as collateral."
Despite the many recent innovations from major banks to offer new customer services via smartphone apps, Crozier said they were still highly constrained by legacy IT.
"The banks have many different siloed applications, they have grown through acquisitions that have never been fully integrated, they have processes that are not fully documented, and a lack of governance," she said.
She said fundamental IT transformation had to happen, and methods of engagement had to change, or banks would see themselves reduced to background roles providing core services.
"They will become a utility: No-one will know who they are. They will be chugging away in the background… They could thrive if they are super-efficient, but all their products will become commoditised so they will have to be very good at it."
Crozier said she did not see all banks taking a sufficiently high level approach to process automation. "Some are saying 'we are going to be a process documented organisation with a single source of truth about how we work from strategy to execution and then we are going to optimise and have continuous improvement through automation… I don't know that all of them are going down that path.
Australian banks, she suggested, were "completely distracted" by the Royal Commission into the financial services sector, but she suggested this would act as a wake-up call and spur them to take digital transformation more seriously.
"In order to prevent the types of bad behaviour that have been exposed they will realise they have to have transparency throughout the organisation and to automate processes so they can measure performance and measure risk...
“A year from now they will have solid strategic plans for execution in 2020. I am sure there are people in the banks working on those now. It is just a matter of getting resources and the mindshare of people dealing with the Royal Commission."