Hu Yoshida

Who is being disrupted by the Fintechs?

Blog Post created by Hu Yoshida on Apr 19, 2017

In the past I have blogged about Fintech companies that are disrupting the financial markets, by offering banking services with more consumer efficiency, lower costs, and greater speed than traditional financial companies. Fintechs have been a catalyst for traditional banks to search for solutions to automate their services in order to compete. In fact, financial companies are embracing the fintechs and the real competition is with technology companies!

 

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In an Interview with Digital News Asia, Sopnendu Mohanty, chief fintech officer at the Monetary Authority of Singapore (MAS) is quoted:

 

When people talk about fintech, the natural understanding is a technology company doing banking, That’s the classic definition of fintech, but the reality is something different – 80% of fintech [startups] … are actually helping banks to digitize, challenging current processes and technology. They are actually disrupting the large tech players in a way that the banks’ technology expenses are getting smaller, while they are getting better customer services,”

 

“What is visible to consumers is the disruption to financial services, but the real disruption is happening to the IBMs of the world,” said MAS’ Sopnendu…. “Fintech companies have not exactly created new financial products, they are still moving money from A to B, they are still lending money, a classic banking product,” he said.

 

“What has changed is the distribution process and customer experience through technology and architecture.”

 

A CIO of a bank in Asia showed me a mobile app that they developed to apply for loans. It was very easy to use. However, processing the loan still took over a week because the back end systems were still the same. There are a number of fintech companies that could process that loan application in a few days at lower cost, and make it available in smaller amounts to a farmer or a pedi-cab driver whom the larger banks could not afford to service.

 

Banks have one major problem to overcome. How do they disengage from the legacy technology upon which they have built all their core processes, in order to adopt the agile fintech technologies and architectures? Many remember the painful, drawn out process of converting their core financial systems from monolithic mainframes to open systems. There are many banks that still use mainframes for legacy apps.

 

The way that the banks transitioned from mainframes to open systems required a bi-modal approach, modernizing their mode 1 core systems while transitioning to the new mode 2 architectures. Some out sourced that transition. The same approaches are needed today and fintechs can help the banks retain their customers during this transition.

 

Another element in this transition are the regulators and there is a class of fintech called regtechs, who are applying some of the same technologies to automate compliance with regulations. Machine learning, biometrics and the interpretation of social media and other unstructured data are some of the technologies being applied by these startups.

 

Technology vendors must become proficient in these technologies and move beyond that to AI, block chain, and IoT. In addition, they must provide technology that can bridge and integrate the mode 1 with mode 2 infrastructure, data, and information. Tools like converged and hyper-converged platforms, object stores with content intelligence, and ETL (Extract, Translate, and Load) automation. 

 

Technology companies should not be looking at each other for competition, they need to be looking at the Fintechs, and understanding how they have innovated in bringing business and technology together.

 

Hitachi established a Fintech lab in Santa Clara last year to work with customers and partners and was a founding member of the open source Hyperledger project started in December 2015 to support open source blockchain distributed ledgers and related tools. Our work on the Lumada IoT platform will also help us to compete in new technology areas like AI.

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