It’s almost an article of faith that when it comes to technology, the financial services sector is ahead of most other vertical markets. The industry resides at the critical intersection of money and information, and for that reason alone—let alone compliance, security, competitive pressure, etc.—staying at the edge is critical. And of course, by just glancing at the budgets many Wall Street titans work with, we can get a sense of the enormous commitment.
However, as a recent piece in InformationWeek makes clear, the reality is quite different. The IT budgets are somehow both colossal and constrained, hampered by everything from tight markets to increased regulatory pressures. As a result, while many of these corporations might excel at developing and releasing new market-facing applications and other tools, they’re functioning with 40-year-old legacy architectures.
In the past couple of decades, this highly sensitive arena has seen hundreds of mergers and acquisitions, and chief priority has been integration—finding or building common layers between vastly heterogeneous infrastructures. It’s surely expensive to maintain, but would be even more costly to replace.
That said, major changes are virtually unavoidable. The operating environment has undergone seismic shifts in just the past few years. Tech-savvy consumers have a plethora of tools—and competitive options—at their disposal, and re ready to take full advantage of them. For their part, institutions must be able to offer a seamless customer experience during transactions that are initiated with, say, a mobile app and completed inside a branch setting. This mandates a back-end infrastructure that can handled wildly divergent technologies. Those institutions that can’t handle it are destined to lose business.
And who they might lose business represents a very different, yet equally significant, aspect of industry transformation. For a very wide range of services, old-line banks are no longer the only game in town.
As many industry observers make clear, there’s a banking revolution taking place, and it’s got nothing to do with the Occupy folks. It’s from a new generation of technology entrepreneurs who see a market that’s primed for change, and they’ve for the technologies to do it. Aggressive startups such as Billfloat to GreenDot are not financial services institutions in the traditional sense—they’re really tech players whose core product happens to involve the handling of money. In the process, they’re perfectly positioned to service millions of individuals whose needs revolve around speed, flexibility, convenience and customization, all of which come from agile technologies and new-wave innovation, not lumbering titans with legacy infrastructures.
This surely plays to some simplistic stereotypes, and it’s unfair to paint every major financial service firm with the same broad brush. But the reality is that with the broad-scale development, implementation and adoption of greatly empowering financial tools and technologies, the divide between individual and institutional has become a chasm. There’s an entire generation of potential customers that doesn’t see or at least appreciate the credibility built up by longtime banks and other financial services providers. They want instant gratification of the kind that only tech-savvy institutions can offer, and pedigree matters much less than it did before.
The ever-present industry shakeout might yet reach a phase where larger banks rely almost entirely on B2B services built around consolidation and size, while younger and nimbler enterprises with a mix of technology and moxie compete for consumer business. Of course, that leaves many current institutions that don’t fit into either category out in the cold. It should be interesting to watch.