Breaking the Legacy Mindset

For banks, the status quo can often stymie innovation. Even if executives have the desire to try something new, their institution can be incumbered by entrenched legacy systems.

But taking a chance on something new can open up institutions to the possibility of achieving something bigger. The decision to choose a new path is usually very difficult; loyalty and security can feel hard coded in our DNA. But sometimes it comes to the point where you realize that the thing you are doing over and over is never going to produce a different, game-changing outcome.

The adage of “Nobody ever got fired for buying IBM” continues to ring true in many ways in the fintech space. It refers to the idea that making a safe bet never got anyone in trouble; choosing the industry’s standard company, product or service had little repercussions for the executives making the decisions — even if there were newer, cheaper or better options. It was safe, the company was reliable and little happened in the way of bucking the status quo.

The payments industry has a number of parallels from which we can draw. The electronic payment ecosystem is more than 40 years old; while there has been innovation, it has not been at the same pace as the rest of the technology industry. Some bankers may remember “knuckle busters” and the carbon paper of old. Although banking have since shed those physical devices, the core processing behind the electronic payments system largely remains the same.

These legacy systems mean the payments industry traditionally has had extremely high barriers to entry. This is due to a number of factors, including increasing risk and regulatory compliance needs, high capital investments, a technology environment that is difficult to penetrate and complex integration webs between multiple partners. This unique environment increases the stickiness of mature offerings and creates a complex set of products and long-standing relationships that make it difficult for new products or providers to break through.

The industry’s fragmentation is also a blessing and a curse. While fragmentation gives institutions and consumers choices in the market, it hinders new companies from emerging. This makes it challenging for companies to gain traction or disrupt existing solutions with new and creative ways to solve problems and address needs. Breaking into the market is still only step one. Convincing banks that you can simplify their processes and scale your solutions is an ongoing challenge that smaller fintechs must overcome to truly participate — and potentially disrupt — the industry. The combination of these factors fuels a deep resistance to change in the banking industry.

Fintechs aren’t legacy companies — and that is a good thing. Implementations don’t need to take months, they can be done in weeks. Customer service isn’t challenging when communication happens openly and quickly. Enhancements are affordable, and newer platforms offer nimbleness and openness.

In order to succeed, fintechs must find ways to innovate within the gray space. This could look like any number of things: taking advantage of mandates that create new opportunities, stretching systems and capability gaps to explore new norms, or venturing out into entirely uncharted territory. And banks do not have to fit into the same familiar patterns; changing one piece of the puzzle does not always have to be a massive undertaking.

What within your bank’s walls just “works”? What system or processes have been on autopilot that could chart a new path? What external services are your customers using that the bank could bring in-house if executives thought outside the box? Fintech can complement the bank, if you select the right partner that expands your ecosystem. Fintech can change user experiences — simplifying them to deliver a truly different outcome altogether.

Take a chance on fintech. It will be epic.