6 Key Takeaways from Bank Fintech Fusion 2023

Bank Fintech Fusion 2023

Bank Fintech Fusion 2023 just wrapped up with some lessons and common themes between presentations and panels with banking and fintech industry experts, practitioners, and investors. They raised points about banks’ business and technology strategies, the future of Banking-as-a-Service (BaaS) and open banking, the evolving roles of bank tech vendors, and fintech investment strategies.

Here are six things we learned:

1. Commitment issues and neglect are endemic.

Fundamentally, failures to transform are a product of leadership issues. Management may be noncommittal and fail to make difficult decisions. It might think transformation is easier than it is and pull back when the rubber meets the road. Furthermore, there are multiple business problems related to existing core systems that are hampering efforts, including critical dependency on a small number of people, a high cost of change, and often too many systems of record and modules across business lines. But things are looking up: More and more banks are embracing the prerogative to transform, and many have succeeded in line with compelling business goals.

2. BaaS is a choice. Open banking is not.

Global public policy has steadily marched toward a consumer financial data right, a level of policy alignment that rarely happens. The US’ industry-driven open banking regime has dragged behind, but during the conference, the Consumer Financial Protection Bureau (CFPB) released its long-awaited proposed open banking rules. Banks will need to figure out how to, first, de-risk participation using a secure and scalable tech stack, and second, find moneymaking opportunities. BaaS is a business decision with similar technology requirements, and to work, it must have the right unit economics, pricing, and almost immediate scale to prove viability.

3. Vendors shouldn’t try to be good at everything.

Banks are increasingly going to specialists for new features, which is important to managing costs and increasing speed to market for digital products and services. Systems built for the core itself aren’t portable: They’re tied to legacy systems and are probably not easily changed, extended, or customized. “Best of breed” applications built into core-agnostic platform solutions can help remove those problems by bypassing legacy systems to, for example, enable personalized sales or speed up onboarding.

4. Business strategy should drive technology strategy.

Bankers too often look to their core provider to solve their problems for them, as if issues with their technology stack come before their business strategy. It’s true that most banks’ technology is old and hampering innovation efforts, but that is only part of the problem. Next-generation core solutions may fix certain issues or even be a differentiator, but they will not fundamentally alter business strategy. Technology, rather, should be a byproduct of a clear vision for the business followed by a well-thought-through technology strategy. Consultants and core vendors will first ask about business strategy anyway.

5. Know the right risks to take and how to take them.

Risk and compliance are never-ending points of discussion, in relation to both fintech partnerships, a bank’s technology stack, and its business strategy. That means having both a healthy risk appetite and the institutional capacity to distinguish between risks that are real and perceived. They can be passive risks, like a fragile, poorly understood tech stack, or related to the business. In any case, they demand control: A head-in-the-sand attitude toward technology is a recipe for trouble. And in a BaaS model, it’s unwise to rely on fintech partners for risk and compliance, and for BaaS banks, it’s a crucial service to provide.

6. Corporate venture capital (CVC) is the future of investment in fintech, maybe.

With venture investment flagging amid higher rates and the contraction in once high-flying consumer fintech, investors are gravitating toward unglamorous often early-stage business-to-business (B2B) use cases that have a solid prospect of sustainable growth. Among these investors are corporate VCs within banks, acting independently or through consortia. The expertise of banks, in the latter case with the added expertise of early-stage investors, can lead to better strategic matches and better returns on investment. But the banks need to decide on the problems they’re trying to solve and the types of returns they’re looking for — monetary, strategic, or both.