FIs are also trying to protect themselves against larger fintechs that might try to displace them in future, rather than collaborate as smaller ones do. Banks are wary of what tech giants such as Facebook, Google, Amazon and others that have captured customer attention can do, after seeing how they’ve disrupted other industries such as publishing.

As return on equity (RoE) has fallen since the 2008 crash and compliance costs increased, banks have had to accept they cannot develop bespoke in-house technology solutions for themselves anymore like they used to in the 1970s and 80s because they do not have non-operational budget anymore. Meanwhile, more nimble tech specialist firms, with no legacy IT or institutionalized staff, can easily meet front-end customer expectations of a fast 24×7, mobile service in comparison to banks that historically have struggled to free themselves from siloed operations.

The rise in customer expectation of better, faster service has coincided with the rise of social and consumer media technology, locational and tracking capabilities, context data and so on. If banks cannot meet the demand, others will. If a UPS can track a parcel, why can’t UBS track a payment?

These are the drivers for fintech – cost-cutting, higher customer and regulatory expectations and better external technology and innovative capacity. It has led to a situation where start-up companies that FIs want to collaborate with have effectively become unofficial research and development (R&D) arms.

Longer established fintech core banking and processing firms such as Temenos or Misys, which existed before the phrase was a hashtag, are also benefiting from the fintech trend, although they typically focus on back-end processing solutions that offer account ledger and customer updates via Software-as-a-Service (SaaS) solutions in the cloud. These don’t have to be installed or supported by banks themselves, further cutting costs and increasing flexibility as new innovations are created.

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