Small, financial technology companies have bigger but burdened banks in their sights. Rod James examines the true extent of the threat they pose and what banks are doing about it.
The start-up financial-technology companies are working to put the pressure on banks with their technology innovation and compete for custom. Derek Schwartz discusses the need for banks to recognise that despite their reputation for stability, their lack of change over the years has led them to become less agile in the market. As a result of this stability banks are reluctant to embrace new technologies because “every aspect of change is an enormous process,” however, this means organisations run the risk of not being agile enough to attract customers.
Banks fight back
Banks currently look incapable of ever being set up to do it. The importance of stability when handling huge amounts of personal data has long made them riskaverse, resistant to changing their processes and the computer systems needed to carry them out. Even if this were not the case, their sheer size makes change costly and disruptive. “Banks don’t like to change because every aspect of change is an enormous process,” says Derek Schwartz, senior vice-president of financial services at Seeburger, a business-integration firm. “Testing, migration, technical infrastructure – a lot of thought is required about how it impacts the bank and its customers.”
He continues: “But the stability comes with ever increasing sacrifices. Year after year, the weight of stability and non-adjustment gets worse and this impacts agility. The longer you go, the harder change becomes and the less agile you become.” In the years leading up to the financial crisis, internal systems were arguably the last thing on bankers’ minds.
Frequent mergers and acquisitions led to the creation of a patchwork of different computer systems. Concomitantly, different business lines were given free rein to bring in whatever IT solutions they thought necessary, creating greater disjuncture and further ratcheting up costs.
“If you look back five, six or seven years, nobody cared about cost,” Schwartz says. “They had money to burn. In fact they wanted to burn some money, to reduce their profits in some respects. Now we are in a situation where it’s all changed. On the one hand there needs to be clear visibility on the cost of running the bank. On the other hand, there is the opportunity cost of not being agile enough to attract customers.”
Derek Schwartz joined SEEBURGER in 2012 as Senior VP of Financial Services. Bringing 20 years of technology experience to this role, Derek is responsible for assisting banks, corporate finance departments, treasury management operations, insurance companies and other financial services organisations in leveraging SEEBURGER’s widely adopted business integration technology to meet their secure data transmission needs. Prior to joining SEEBURGER, Derek was the VP of Financial Services for North America at Axway, which he joined when the company merged with Cyclone Commerce. In this role, Derek grew the business by 275%, during a very difficult period in the industry. At Cyclone Commerce, Derek developed the EMEA operation and grew a very successful business that exceeded expectations annually. Derek holds a Bachelors of Commerce and is a Certified Public Accountant.