The early FinTech debate was too often framed as a contest between fast startups and slow banks. The more important question was whether incumbents could absorb technological change without losing the institutional strengths that made them banks.
I recently read a sharply critical assessment of the FinTech revolution from an executive with a long background in banking technology. His argument was that much of what was being called innovation was simply another stage in banks moving existing processes onto new channels.
He traced the evolution from PCs and dial-up modems through ATMs, electronic funds transfer, electronic data interchange, straight-through processing, proximity payments and mobile phones. His description of mobile banking was deliberately blunt: putting existing online banking onto a mobile device.
There is some truth in the criticism. Customers have increasingly taken on tasks that bank employees once performed, while banks have reduced costs by moving processes into self-service channels.
But I do not think that is the whole story.
Technology is more than a new interface
FinTech has taken an industry built on legacy systems and created opportunities to streamline processes, reduce costs and improve efficiency. The fact that a customer now completes a process digitally does not, by itself, make that process innovative. But the technologies underneath the new model can change the economics and possibilities of banking.
The more important point raised by the criticism is that many of the industry’s problems are now technically solvable. The question is whether incumbent banks can use those technologies quickly enough.
I previously argued that banks‘ involvement in FinTech could become a form of strategic adaptation. FinTech represents a new source of revenue and capability for banks, while competition from startups can push incumbents towards better products and more convenient services.
The real contest was not technology versus banking. It was whether banks could change the way they built, decided and served customers.KEVIN MOSERI · EARLIER WORK
The asymmetric risk of innovation
The majority of banks have an asymmetric risk profile for innovation.
FinTech companies can start again. Banks cannot. Incumbents carry legacy systems, regulatory obligations, established customers and reputational risk. A startup can pursue a narrow problem deeply; a bank has to consider how a change affects an entire system.
That difference helps explain why FinTech companies have been able to move with greater speed, flexibility and focus.
So the real question is not whether banks understand technology. It is whether they can overcome the legacy thought processes and systems that make rapid change difficult.