How Can Investment Banks Tackle Fintech Hurdles?

How Can Investment Banks Tackle Fintech Hurdles?

By Israel Hersh, SVP Business Development, tekVizion

Fintech challengers have been rising recently, causing the world’s largest institutions to take deep looks within their DevOps team and in-house lab, hoping to drive innovation as a response. Yet, due to burdens from legacy networks, as well as massively complex and integrated 3rd party systems, innovation may not be as simple as it seems.

From a multitude of statistics, it’s clear that the banking sector is under-going a massive shake-up from every angle from fintech challenges.

Due to the pandemic, demand for fintech solutions has never been more intense, which positions 2021 as the year for an even stronger fintech evolution. Essentially, financial technology went on steroids to accelerate new solutions to meet the intense demand and serve a world that is now adjusting to this “new normal.”

The outlook for North American and European fintech is positive due to the financial industry’s ability to sustain strong financial fundamentals (International Banker). The main 2021 fintech themes to pay attention to are:

1) Digital Banking –Artificial Intelligence (AI), biometric, open banking and cybersecurity advancements are key technology enablers in this area.

2) Digital Currencies –  2021 is the year where digital currencies are progressing towards legitimacy as 2020 exhibited a strong market entry of institutional investors and central banks started to explore the issuance of national digital currencies.

3) E-commerce – The pandemic accelerated the global shift towards a more world and the demise of brick and mortar retail shopping. Based on the 2020 trends, 2021 is poised to bring an explosive growth of e-commerce in Asia, Middle East, Africa and Latin America.

4) Contactless payments – Social distancing restrictions drove a shift from using cash towards contactless digital payments. According to PayPal’s CEO, Dan Schulman, contactless digital payment is now evolving from being an optional capability to an essential service and that it will only become more of a necessity going forward (International Banker).

5) Advances in AI – In 2021, fintech apps will continue to utilize AI more broadly and grow significantly in areas of chatbots, fraud-prevention, and analytics engines analyzing large volumes of data.  According to the June 2020 “AI in Fintech Market – Growth, Trends, Forecasts (2020-2025)” from Research and Markets the global AI-in-fintech market was valued at $6.67 billion in 2019 and expected to grow to $22.6 billion by 2025 at a compound annual growth rate (CAGR) of 23.37 percent (2020-2025) (International Banker). “Increasing demand for process automation among financial organizations is driving the market,” the report stated. “Process automation is one of the major drivers of artificial intelligence in financial organizations” (International Banker).

Not only are payments or remittance sectors being disrupted, but also capital markets have similarly been transformed by the new entrants and technologies. Nonetheless, banks remain slow to act.

How can investment banks respond to this challenge?

According to Deloitte’s “2021 banking and capital markets outlook”, the answer is strongly influenced by the 2020 pandemic (Deloitte). Before the pandemic, common thinking was that the sharing economy, urbanization, and globalization were here to stay. Now, these global megatrends remain deprioritized. Additionally, we saw that institutions that made strategic investments in technology have been financially rewarded, while laggards who didn’t, have struggled to remain relevant.

As a result of the pandemic, new megatrends have been elevated in priority. One of them being the virtualization of the workforce as many organizations have already adjusted to working remotely. Businesses must look to build a hybrid redesign of the work environment, balancing office work and remote environments to boost productivity, creativity, and collaboration. Another megatrend is to prioritize structural cost reductions to ensure business continuity based on cash, profits, and revenues.

Banks will need to enable employees to learn better, faster, and more frequently. Technology should be used to improve talent outcomes and promote resilience. “It should also play a fundamental role in improving productivity in a virtual environment, boosting learning, creating flexible teams, sharing knowledge, making information flows efficient, and promoting new forms of collaboration across the organization” (Deloitte).

Banks’ IT already uses agile practices for software development and testing. It is critical to integrate the same practices into business operations—new tools and technologies will enable this transformation. Bank’s Ops should explore technology for long-term cost transformation, resilience, efficiency, and agility. Technologies such as cloud, machine learning, robotic process automation, and distributed ledger technology, can simultaneously contribute to significant cost savings, while also helping increase speed, improve accuracy, and provide scalability (Deloitte).

Operations teams will have increased pressure to deliver cost cutting innovation, which suffice to say, is easier said than done. Their reality remains to be testing and installing security patches and bug fixes across hundreds or thousands of turrets. So, it’s hard to deliver innovation while being weighed down by repetitive tasks.

Thus, manual testing can hamper a bank’s Ops team for days, including weekends, leaving them unable to devote the time and effort needed to produce the innovation required so that banks can compete with the fintech threat.

So what can investment banks do to survive and thrive in this increasingly competitive, margin-shrinking market?

The answer lies in automation. And I don’t mean big ticket investments like AI, although clearly they will be a critical part of the long-term future. I mean using automation to free up valuable (and finite) developer time TODAY.

By augmenting existing manual testing processes with proactive automation, banks can not only improve the uptime of their trading systems and save on having to pay weekend over-time to Ops teams to install patches while the trading floor is closed; they can also free the talent within banks’ Operations to be able to invest their time in creating value for the organization.

You don’t see agile, disruptive fintechs weighed down by legacy processes. To have a chance of responding, investment banks need their Ops teams to behave more like a fintech. Automate repetitive processes; innovate new ways of working; create value for the bank.

For more information on how proactive automated testing can help augment manual testing and free up banks’ Ops team time, go to

 © 2021 IPC Systems, Inc. All Rights Reserved. The contents of this publication are intended for general information purposes only and should not be construed as legal or regulatory advice.