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Harnessing financial technology in building societies

Guest blog by Amyn Fazal, CEO of Penrith Building Society.

The history of financial services is fascinating. Of course, we all know that money has been around for a very long time in many different shapes and forms. It started with the simple bartering of goods, and later developed into the use of objects such as cowrie shells as currency. Today it includes diverse and sophisticated payment methods including virtual currencies and intangible credits. Technology has always been a key part of that evolution. Over three thousand years ago, people in China started using bronze replicas of goods as money, and today FinTech is growing at breakneck speed. Financial institutions are finding it hard to keep up.

A very simple example of this is ordering a book from Amazon. I had heard of the book Other People’s Money by the Financial Times’ former banking correspondent, David Lascelles, and decided I would like to buy it. It took me all of twenty seconds to find it, and then pay for it using Amazon’s 1-Click function; two days later it dropped through the letterbox. It’s so easy. Something similar is happening with car purchase financing. Could it even apply to house buying in the not-too-distant future?

Not so long ago doing anything that involved technology was a complicated process for providers of financial services. First they needed to acquire the knowledge by buying in expertise. Often they spent a lot of money, risking a big dent in profits if it all went pear-shaped. But that may now all be changing. Fintech organisations are springing up everywhere. Employing some extremely bright people, they have the potential to disrupt the market by entering it themselves or perhaps by partnering with an established business.

Back in May 2014, when the Financial Conduct Authority launched its Innovation Hub, it stated: ‘We are committed to looking to the future, anticipating trends and reacting accordingly. We recognise that we must understand more about the needs of innovator businesses and their products and services, and the possible benefits and risks to consumers.’ The Innovation Hub created the opportunity for firms to engage with innovative financial businesses. They were able to air their views, discussing a range of issues with these businesses at specially arranged events and other gatherings.

The Regulator’s desire to provide advice and guidance to firms wishing to innovate by using technology in every part of their business is to be welcomed. Like anything new, perceived benefits to the consumer must be thoroughly tested to ensure that all downsides have been identified and mitigated from a risk perspective. In a heavily regulated industry, financial organisations are conditioned to consider risks before any other consideration. This is perhaps as it should be, but we also have to learn to be agile, to challenge historically held beliefs and to respond to new ways of doing business while ensuring that we stay safe and secure.

FinTechs have the luxury of being able to focus on the here and now and the growing demand from the 21st-century customer. The new start-ups can cover traditional banking products and services, invoice financing, supply-chain financing, merchant finance, trade finance, peer-to-peer lending, equity crowd funding, and much more. The new disruptors are often able and are keen to get anything they produce out there. Moreover, it’s all they might be working on at any particular time. They are quick to adapt to changes and are able to seize opportunities, but they often lack the wherewithal to navigate the complex regulator licensing and authorisation process. A collaboration opportunity if ever there was one!

Traditional financial organisations have a slower turnaround time when it comes to innovation. Faced with a web of historically complex policies, procedures and budgets, as well as entrenched attitudes among staff, a good idea could easily be talked down long before it reaches proper evaluation from a customer-outcomes perspective.

As the chief executive of a small building society, I can see many opportunities in FinTech which seem easier to grasp, cheaper to embrace and more straightforward to implement than the traditional way of doing things. Digital technologies can help the sector to improve its customer interface (remote advice, communication including complaints and complaints handling), products and services (smartphone fulfilment of purchases and payment) and processes (upending age-old quill pen approaches to doing business). Financial services are central to all our lives and the potential for disruption from FinTech start-ups is palpable.

It is inevitable that the old and the new will have to work together. We need to collaborate to learn about what customers want and need in their lives and to harness technology to deliver outstanding customer service.

Originally published on the BSA Conference website.
 

Posted by The BSA Team on 06 December 2016