Fintech futures: Evolution or revolution in 2022?by
Building on issues raised at the AccountingWEB Live Expo future of fintech debate, Bill Mew looks at different forms of integration and their potential for driving evolution or revolution in fintech.
At the beginning of December I went to Coventry to take part in the AccountingWEB Live Expo session on Tomorrow’s Technology Today: Fintech In 2022 along with Factotum CEO Bobby Lane, Sidgrove founder Dave Sellick (left in image above) and Sam O’Connor, CEO at Coconut (right above; that’s me in the middle).
The potential of integration and automation dominated the disucssion. As I reflected on these themes, I could see they operated at three different levels, which I’ll explore in this article:
- Functional: between different accounting apps and platforms - Most app vendors at the Expo were championing their ease of integration with the main accounting software platforms like Sage and Xero. This level of integration “within silo” is fairly common and now a must have for most apps.
- Organisational: between different business functions in an organisation or with clients – “Cross silo” integration is more of a challenge, but the potential rewards are enormous. CRM systems are already enabling marketing and sales teams to work more efficiently together to improve client experience. Collaboration technologies have enabled us all to work from home with both colleagues and clients; and business information systems could mine data from all areas of the business to provide senior management with a real time dashboard of exactly how an organisation is functioning.
- Market-wide: across markets or entire supply chains between many different organisations – Potentially the most disruptive area of integration is at the market-wide level. Often these are driven by major regulatory initiatives like the Data Protection Act and Open Banking in the UK or GDPR and the Payment Services Directive (PSD2) in the European Union. However they can also be driven by technology shifts and Big Tech players, such as the migration to public cloud.
Each of these can be driven by a combination of top down or bottom up forces, as shown in the following examples:
Example 1: Compliant client engagement
At the organisational level the use of collaboration apps has been driven from the bottom up, with staff and clients finding the functionality and ease of use of apps like WhatsApp invaluable, especially during lockdown. In many professional services firms compliance departments have been slow to appreciate the risks here. Individual accounts are not integrated, cannot be managed centrally and there is no audit trail. This can create massive exposure if a client disputes or misinterprets advice. Regulators are beginning to crack down, with JPMorgan Chase recently fined $200m for conducting business on WhatsApp.
Organisations are now scrambling to implement apps like VCTALK-SAFE that offer all the functionality of WhatApp, but include tamperproof call recordings and also uses application programming interfaces (APIs) to integrate with CRM systems as well as provide full call transcripts with keyword search.
Compliance departments can then monitor client engagement. Senior management can see how often teams are engaging with clients, or even how often they miss calls from clients. Staff have fully searchable call transcripts so no longer need to take or write up call notes. And data can be mined for trends and anomalies (all of which we intend to explore in more depth soon).
Example 2: Open banking
Unlike traditional banking where all customer data is controlled by the parent bank, in open banking customers provide consent for their data to be securely exposed to third-party providers via APIs. This data sharing promises to enable delivery of innovative new services and spur competition. However, it also creates a broader threat surface that must be protected from cyber attack.
So far, open banking has been driven from the top down by regulators and is poorly understood by consumers. Reluctantly embraced by banks, six of the UK’s nine biggest account providers missed the Competition & Markets Authority’s January 2018 deadline and had to be given extensions.
Forcing these banks to build and maintain APIs for compliance reasons, rather than because they are revenue-generating, resulted in low quality, unreliable APIs. In September, 1.7% of open banking transactions either failed or were rejected. Until banks learn to see beyond this as purely a compliance exercise and build a high quality API infrastructure for real commercial use, service quality will continue to suffer, hampering wider service development.
Meanwhile challenger banks, that have the most to gain from any disruption, have failed to make customers aware of the benefits of open banking or to develop well-positioned and differentiated services to capitalise on the new APIs.
Incumbent banks sit on a treasure trove of client data and have massive resources and vast sums in client deposits, giving them a massive competitive advantage. At the edges though, payment fintechs such as Square, Stripe and others are weaking the big banks’ grip on the market.
If the incumbents actually capitalised on their current advantages while also seeking to exploit the potential of open banking services and collaborations. they’d stand a far better chance of keeping the fintech challengers at bay.
The API economy
Both of these examples demonstrate how the new “API economy” is underpinning the way we will do business in the future. APIs are essential for integration at all levels – whether functional, organisational or market-wide. They are also the gateway to far greater intelligent automation and higher levels of innovation, competition and efficiency.
As the examples also show, top-down mandates can enforce APIs, but not their quality or reliability. Bottom-up movements, meanwhile, can lead to inappropriate choices, often for security or compliance reasons - as with WhatsApp. On top of this the security risk from sharing data without adequate protection is potentially catastrophic.
Embracing API data sharing and innovation needs therefore to be balanced with strategic mitigation of the compliance and security risks that come hand in hand. The benefits and risks on either side of the equation are considerable and I expect us to explore them time and again as 2022 unfolds and as more calamities hit the headlines.
Whether you want to be cautious adopting APIs (evolution) or are in a hurry to do so (revolution), it is clear that this is the direction of travel. Start by focusing on data quality and data management so that the value of your data can be maximised once shared. Then explore how to optimise your use of APIs to capitalise on integration while also addressing the risks.
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Founder and CEO of CrisisTeam.co.uk (SiliconANGLE global Startup of the Week – May 2019), an elite team of experts in incident response, cyber law, reputation management and social influence that help clients minimize the impact of cyber incidents. Previous cloud strategist at UKCloud (the...