Business of Fintech

What could happen if large banks really invest in fintech

  • If the large banks got serious about fintech, the game could change.
  • Moody's report explains just how much impact bank investment could make.
What could happen if large banks really invest in fintech

The collective investment capacity of the largest bank is tremendous.

Moody’s estimates that if the largest banks were to direct 50 percent of their tech spend towards new technologies, the total fintech investment capacity of this group would equal nearly $112 billion over the next five years.

The environment for big banks: Over the past decade, banks have had a variety of things to wrestle with:

  • low interest rates
  • declining product margins
  • onerous regulation
  • legacy litigation and legal costs
  • taxation issues

What banks spend their tech budgets on: For the most part, banks spend their tech budgets on maintaining their legacy systems. But that’s changing as some banks get more strategic about developing new technology to compete with fintech offerings.

fintech investment capacity of large banks

What technology banks should spend on: Some of that money is flowing through to robotics and AI to help automate a lot of back-office operations (See our cheatsheet on Robotic Process Automation). JP Morgan’s $9.5 billion tech budget allocates a big chunk to this effort, with the capacity to spend 10 percent of its annual revenue on technology — 50 percent of which could go to “change the bank” type initiatives.

banks' tech spend

According to Moody’s, banks should first “cut back the complexities and inefficiencies stemming from years of underinvestment into digital technologies as well as from the incompatibility of acquired or newly developed platforms with legacy IT systems”.

Don’t compete, collaborate: Large banks, with diversified operations in investment banking, capital markets, and cash management, have an opportunity to partner with fintechs.

moody's tech for investment banks

Technology firms can help banks by:

  • raising their efficiency
  • providing digital infrastructure
  • helping enhance clients’ digital experience (important for retaining clients) with payments, cash management, transaction banking and automated trading operations

Figuring out the right mix of technology, user experience, and professional advice will differentiate the leaders from the laggards in the future.

 

Business of Fintech

Cloud technologies and APIs are the building blocks of the bank of the future

  • ABN AMRO recently launched New10, an SMB-lending fintech.
  • Cloud tech and APIs accelerated concept to launch in just 10 months.
Zack Miller | October 02, 2018
Business of Fintech

‘You get out what you put in’: Fintechs find success in QuickBooks Online’s ecosystem

  • Marketplaces can be tough to navigate for fintech firms.
  • Early adopters have tapped into growth on QuickBooks Online.
Zack Miller | July 17, 2018
Business of Fintech

A sea of sameness: As startups turn into bank-like platforms, differentiation remains an issue

  • Financial startups are increasingly adding on services, aiming to become one-stop shops that offer almost everything except brick-and-mortar branches
  • Focusing on the needs of a specific client base and quickly evolving the product will becoming increasingly important
Suman Bhattacharyya | June 08, 2018
Business of Fintech

Inside Swell, Pacific Life’s in-house impact investing startup

  • Swell, an impact investing startup, was built inside Pacific Life to offer different types of products for a new clientele
  • Swell's autonomy lets Pacific Life test new product approaches and build a culture of agile development throughout the company
Suman Bhattacharyya | May 29, 2018
Business of Fintech

Why BBVA is investing in a Chinese venture fund

  • BBVA has invested in Sinovation Ventures IV for AI-driven insights, potential partnerships and a strong return on investment
  • The Spanish bank is, like its peers, looking to implement AI solutions to help it create a more customer-centric banking experience offering an entire suite of services around banking products
Tanaya Macheel | April 18, 2018
More Articles