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Tools to succeed: Just out of the reach of our fintechs?

We hear so much about how banks and fintechs have to leverage each others’ strengths and complement each other to bring viable products to market. But how smooth has that journey been, to date?   We hear about hackathons with prize money that banks organise for these startups, and all the so-called initiatives financial institutions put in place to work together with startups.

But, is our industry’s environment conducive for fintech startups to grow and really, really thrive?

Take for example the business pitching and hackathons that banks organise. The winners of these activities have their ideas lauded and rewarded but they usually also get left out of the commercialisation process of their idea, as well as any share of revenue it may generate.

The popular perception about this is it’s just as well because banks have the heft, reputation, not to mention regulatory approval and licenses to bring startup ideas to commercial fruition.

Most fintechs do have this end goal in mind, which is to just sell their ideas. Well and good. But who is around to protect the interests of fintechs that want to see their projects through to the end and/or maintain complete or part ownership of their solutions?

According to Alain Boey, a former IT professional with the nation’s retail bank, the momentum that our fintech ecosystem has gathered by now, pales in comparison to momentum of fintechs from Thailand and Indonesia, despite us talking about financial technologies (fintech) much sooner than our neighbours.

Boey also opined that at the rate we are going, Philippines that is already hot on our heels, may very well overtake us in terms of number of fintech companies that go live.

Why is this happening?

He said, “Perhaps if there are open policies and processes in place, the time-to-market for these fintech initiatives can be hastened.”

Fintech deterrents

The banking sector is a tightly regulated industry. For security and privacy reasons, customer data is not allowed to leave premises of the bank and the country the bank is located in.

Boey explained that all data pertaining to customers must remain on-premise, and thus this means that apps and databases, cannot be outsourced to third-party vendors.

Besides being a third-party vendor, most fintechs being startups also do not own their own expensive infrastructure and rely heavily on foreign cloud providers (located outside the country) to offer their solutions. Neighbouring countries have adjusted for this scenario and already laxed the rules enough for some data to finally move outside the banks’ four walls, as long as they do not flow beyond country borders. Some classes of data that are not sensitive can also leave the country.

Boey said, “It’s still a long journey for Malaysia before public cloud usage in the banking industry is allowed. It is ironic as credit card transactions that Malaysians conduct overseas, already means customer data is flowing outside.”

The CIO of a local bank has also viewed that fintechs will not survive long in this industry because demand for the solutions they propose, ie. mobile payment, is limited. If there is no support or demand from the ecosystem, the app is dead in the water.

Basically, the quality of apps that our fintechs produce still needs a lot of work in terms of viability and even usability.

Most banks also have to implement many workarounds to integrate with the modern technologies that fintechs bring. This time-consuming process is exacerbated by regulatory approvals that take too long to materialise, if ever.

It begins to become a question of whether fintech apps are enterprise-ready and compliant-ready enough or whether banks are giving up too easily when trying to integrate them into the bank’s IT environment?

The most pertinent question of all: Are the tools our fintechs have to work with and the conditions that exist for them to work within,  helping or hindering them?

 

 




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