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Consulting firms ratchet up the perpetual financial FOMO

The Visigoths are coming to bring down the empire! Young agile fintechs are yielding their slings and arrows of outrageous fortune against slow and clumsy Goliaths! Unicorns and decacorns are grazing in the fields of finance, disrupting the laws of nature.

Financial execs are in perpetual future shock and Fear Of Missing Out, all with the help of mismatched metaphors and clumsy historical references.

Welcome to the TechCrunch-management consultancy complex, in which popular tech media sets the feverish tone, consultants capitalize on the atmosphere of fear to peddle their services, then feed back respectable industry data to the media. The ultimate echo chamber.

This has been the current state of affairs in fintech for a while now. Just take a look at some of these recent quotes and headlines: “MoneyLion brings traditional banking ever closer to obsolescence”, or “Fintech could be bigger than ATMs, PayPal, and Bitcoin combined.”

The latter makes as much sense as saying, “The earth will be bigger than the continents, oceans and atmosphere combined.” Fanboy bloggers have joined the mix, asserting that “What Uber did to taxis, Fintech is doing to banks.”

Then there are the more authoritative pieces, like Brett King’s Medium post from December 2015. “If you’re a bank, 2016 is the year you start redesigning every single product in your wheelhouse,” the piece concluded. It’s a very detailed piece, building on various consumer trends, from the rise of Uber and self driving cars to diminishing adoption cycles. It concludes that banks can’t sustain their current rate of un-innovation.

There’s a theme to all these articles. Something big is coming, like The Nothing from the Never Ending Story, that threatens to swallow us whole.

It’s Y2K all over again.

The big consultancies have caught on. Their reports, while methodical and well-researched, act to grow the FOMO echo chamber. This obviously works to their benefit when pitching their services.

“Banks are struggling to respond to increasingly aggressive fintech competitors,” Capgemini wrote in its 2016 retail banking report.

Accenture’s report, “Fintech and the Evolving Landscape”, described 3 options for banks: Adapt to be digital leaders, partner with third parties as an open, value-added platform, or die as a customer-facing product.

Putting this this way is like a shoe salesman offering pairs of shoes for $40, $200, and $800, in order to make a $200 option seem like the best value.

Banks have predominantly chosen Accenture’s second option. Santander, for example, recently published a white paper calling for collaboration between banks and fintech companies.

“We expect partnerships, acquisitions, and coopetition will be key to the way the vertical develops – more so than for any other online category we have seen thus far, “ Goldman Sachs wrote in the “Future of Finance” report from 2015.

PwC’s DeNovo platform exemplifies the fear mongering in the industry. The real-time platform offers strategic advice about possible effects of fintech for a business. No bank makes strategic decisions on the go. The only reason one might need a 24-hour fintech hotline is if he is a FOMO junkie.

Are we really facing the end of banking as we know it? Probably not.

Financial institutions face a fate more similar to that of Microsoft than that of Nokia or Kodak. Microsoft was so entrenched in the market that it managed to miss the rise of the consumer internet, the smartphone era, yet can still drop $26.2 billion in cash on LinkedIn.

This isn’t to say financial institutions shouldn’t innovate. To the contrary, aging core banking systems are a real problem. The dawn of the post-smartphone era is upon us which will again change the way we communicate with each other and businesses. Changing customer expectations across generations requires creative offerings from financial providers. Not to mention the growing burden of regulation…

If banks want to survive, they need to innovate now, the consultants tell us. That’s true. It has always been true. Banks also needed to innovate a decade ago, and will need to innovate in the future. The TechCrunch-consultancy complex does nothing more than promote innovation theater, garner clicks and close contracts.

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The changing demands on a technology consultant in today’s finance industry

dataart and financial services consulting

Even if an incumbent financial institution decides to build versus buy on a new project, they’re not always developing their in-house technologies in-house. Banks, asset managers, and brokerages typically use a unique mix of their own engineering talent with both on-shore and off-shore consultants.

If there isn’t a turnkey option available, DataArt is one of those consulting businesses both large and small financial firms turn to to help develop bespoke technology solutions. The firm employs over 2000 full time engineers and typically works on around 100 projects at any given time. Its financial service business is its largest practice out of the 5 industries DataArt serves. Within finserv, the consulting firm is most active in capital markets, trading, wealth management, payments, underbanked banking solutions, and private equity.

Alexei Miller heads up the firm’s financial services practice and shares what he feels are the three most exciting trends his clients are facing in the market today:

  • pure-play disruption: Silicon Valley has its sights set on disrupting financial services and is funding a variety of stand-alone companies to compete with traditional financial firms. While none of these startups are really big enough to threaten the incumbents, DataArt’s clients are definitely feeling the pressure to innovate from some of the pure-plays. But for the most part, according to Miller, this isn’t the compelling part of the disruption underway in financial services. “It’s great that there’s new interest and additional resources in the market,” Miller offered. “But there’s way too much hype.”
  • optimization: It’s here that Miller gets incrementally more excited. There’s lots of activity centered around applying existing or incremental versions of technologies to optimize current processes within financial services. Miller cites blockchain and big data as two prime examples of newer technologies deployed to optimize relatively mundane processes. Despite all the hype surrounding fintech, the DataArt executive thinks this is a very promising source of innovation.
  • incumbent innovation: Miller lights up when he talks about the technology activities taking place at large financial institutions. He’s impressed by the quality and pace of new technologies being developed and deployed by these firms. Some of these firms are pooling resources together to spinoff new tools.

One such example Miller is impressed by is Clarient Global, a joint venture between the DTCC and Barclays, BNY Mellon, Credit Suisse, Goldman Sachs, JPMorgan Chase and State Street. Clarient has developed a data solution that should help financial institutions get their hands around and standardize the various types of documents required for compliance during the client onboarding process. It’s kind of like a repository of KYC information that can be collected, verified, and stored by a person’s financial service provider. “Clarient talks about creating a data management utility for financial services — that’s really powerful. Who else knows what the industry needs more than its own players?” Miller remarked.

DataArt is currently working on a project in the trading space which involves social media to negotiate transactions between banks and brokers. Miller is the first to admit: the intention isn’t necessarily to disrupt trading and processing flows but rather to develop a really innovative UI for the transaction process. Another current project at his firm includes a technology solution for AML that’s being developed outside of banks using high performing data analysis from Twitter streams to discover pattern recognition. If it proves successful in identifying nefarious activity, the plans are to integrate into the client’s systems.

The firm recently hired financial industry veteran, Cliff Moyce, as the global head of its financial practice. Moyce has deep experience with digital transformation from his previous roles at IFFE (London International Financial Futures and Options Exchange), Markit, Lloyds of London, Orix Investment & Development Capital, and Credit Market Analysis (CMA). He was also a DataArt client and advisor before taking on his current mandate. On Moyce’s hiring, Miller explained, “Hiring [him] demonstrates that to tackle complex projects, you need to build the strongest team possible. You can’t solve everything with technology.”

DataArt’s domestic competitors include GFT and Sapient and while offshore, the company tends to bump up against firms like TCS and Infosys. When asked about how DataArt differentiates versus some of its competitors, Alexei Miller responded, “Competition is an exercise in picking battles. Marketing is a tough game, with a lot of empty promises. We won a large transformation deal last year and we asked our client over drinks why we won out against a major consulting firm. The executive said the decision was simple: ‘Your competitor’s final presentation was all about big data and the cool, sexy technology they’d build us to solve our problem. You [DataArt] talked about your understanding of the problem.’ Now, you can’t do that for every client but experience and expertise goes a long way.”

Photo credit: hackNY via Visualhunt / CC BY-SA