For Prof Gilbert Fridgen, the Paypal-FNR PEARL Research Chair at the University of Luxembourg’s Interdisciplinary Center for Security, Reliability and Trust (SnT), the major driver for innovation in the financial services industry is customer expectation. “It’s always important to look at the customer side of the market you’re involved in,” explains Fridgen. “If you’re running a bank, it helps to understand that customers now have other expectations when interacting with financial services providers.”
Technological disruption has already changed many industries and today’s customers are used to customised recommendations and fast response times, so they expect the same level of service of financial services. “If I order a physical product from Amazon, it’s usually delivered within a day. This makes it difficult to understand why a bank transaction can sometimes take more time than delivering a physical product through Amazon logistics,” explains Fridgen. “This increases expectations and thus triggers innovation in FinTech.”
Data, the engine of innovation
Innovation is happening against a backdrop of increased availability of data and new regulations. In order to deliver the innovation customers are looking for, financial services need to process the massive amounts of data that they have at their disposal. Regulators are also looking to take advantage of the large amount of data available, making the need to access it even more critical for financial institutions. Yet this poses a challenge to companies, as many aren’t able to collect and process the information within their complex IT systems. “Many companies have legacy IT systems that are already challenging to work with, and will become even more so into the future,” says Fridgen. “Therefore, it is crucial to transform their IT to be flexible enough to be able to adapt to the changes to come.”
Many companies have legacy IT systems that can already be challenging to work with today. Therefore, it is crucial to transform their IT to be flexible enough to be able to adapt to the changes to come.
Having an up-to-date IT setup will allow for the smooth integration of new technologies that are currently transforming the industry. Fridgen believes that technologies such as Artificial Intelligence (AI), the Internet-of-Things (IoT), and Distributed Ledger Technologies (DLT) such as Blockchain will open up new opportunities for financial products. “Sometimes large organisations tend to have a hard time coping with new trends and technologies because running a business as usual feels comfortable,” explains Fridgen. “FinTech companies drive into this market, often with a more modern IT architecture, and become either competitors or service providers to the established companies.”
As a result, established financial service companies risk losing a share of their market, which is what happened to banks when players such as Google Pay, PayPal and Apple Pay arrived on the payments scene. By allowing other providers to access their systems, banks are opening up potential security loopholes, making data security and privacy more important than ever.
To anyone with a professional background in business, I’d suggest building competences in the area of digital technologies. And to anyone with a background in computer science, I’d suggest building up your business skill set.
Skillset of the future
In order to adapt to FinTech trends and avoid being phased out by competitors, banks need to hire staff with a mixed skillset. “You need experienced professionals who know both the financial service business, as well as IT; people who understand the potential but also the difficulties that might arise with new technologies,” says Fridgen, who leads the FINATRAX group at SnT, a research group specialised in the intersection of business and IT innovation in the financial services industry.
“Finding enough people with that profile is a challenge; the job market is eager for people with a mixed profile. To anyone with a professional background in business, I’d suggest building competences in the area of digital technologies. And to anyone with a background in computer science, I’d suggest building up your business skill set – and, especially in Luxembourg, in the area of financial services.”