Financial Institutions struggle to accelerate pace of innovation

07 Apr 2017

New research by international law firm, Simmons & Simmons shows how many large financial institutions are struggling to innovate fast enough. Hyperfinance, the firm’s flagship research programme, investigates what large banks and asset managers need to do to succeed in accelerating their digital innovation and overcome the challenges they face.

Key findings:

  • 71% of respondents report that cybersecurity is the most significant risk associated with partnering with FinTech firms.
  • Approximately one third expect to acquire a FinTech firm within the next 18 months. Of the remaining two-thirds,
  • 45% cite concerns about regulatory risk as a key deterrent.
  • 55% are building in-house capabilities. With disruption at the door, incumbents accept the need to partner and move faster, but say they are poorly equipped to do so.
  • 53% say that there is an institutional desire to own the IP when working with FinTech firms, which can stand in the way of effective collaboration.
  • 38% say establishing new business units for FinTech has been the most effective in improving their digital innovation, putting it ahead of other strategies that firms are pursuing.

Commenting on the results, Angus McLean, head of FinTech at Simmons & Simmons says: “Despite the huge focus on innovation in the sector over the last few years, there is no doubt that many financial institutions have struggled to move fast enough. We are now at a critical time for the industry, as we begin to see which strategies are paying off and which are failing. Our Hyperfinance report lifts the lid on how the market leaders are dismantling the barriers to innovation in financial services and identifies the steps required for others to catch up.”

Simmons & Simmons sets out six steps to faster digital innovation:

1. Escape the ‘four walls’. Whether it’s creating a separate legal entity, or establishing an innovation lab within a start-up ecosystem, careful engagement with the main organisation can help to ensure that the unit’s innovation is a commercial success.

2. Adapt the on-boarding process. Adopt a more flexible and tailored approach. Legal and compliance must be ready to use a ‘lighter touch’ for lower-risk collaborations with FinTech firms.

3. Get pragmatic about IP. A flexible approach to IP structuring is crucial. Licensing arrangements are increasingly important to FinTech firms’ innovation in certain areas, while banks that are comfortable with licensing structures can become early adopters – and gain further benefits.

4. Centralise the digital innovation strategy. Multinational banks and asset managers need a coordinated plan of attack to stay abreast of new technology. A centre of excellence or centralised knowledge base is key in efficiently marrying the right innovations with the needs of the business.

5. Know your partners. There is no substitute for spending time getting to know the founders and other senior staff in person. Asking the founders to describe their technology development cycle and their approach to compliance gives a much clearer view of the risks presented by an early stage business than asking them to fill in a 200 page procurement questionnaire and provide a raft of policies that they may never have read.

6. Pick the right investment model. Outright acquisition of FinTech businesses could quash innovation where those firms need to work with multiple players to develop cross-industry solutions. Taking a minority stake in a FinTech firm (rather than making an outright acquisition) bypasses this risk, while enabling financial institutions to get closer to the development of the technology. 

Hyperfinance is Simmons & Simmons’ flagship research programme. The firm surveyed 200 senior level respondents (30% at c-suite level) across five financial centres to investigate why most large institutions in the financial services sector are struggling to innovate quickly enough. The research shows us how the industry leaders are learning to reach hyperspeed.

Click here for more information | Download the full report here.

Hyperfinance in the media

FinTech Finance 
City AM 
Finextra 
Financial News
Computer Business Review
Computer Weekly
FSTech
IBS Intelligence
Peer2Peer Finance News
Handelsblatt
Information Age
Corporate Treasurer
ACQ Magazine

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