Are incumbent banks now better at innovation than fintech software firms?
The quote above from four senior McKinsey banking and digital strategy leaders — Brian Ledbetter, Gokhan Sari, Harald Kube, Leorizio D’Aversa — is notable in the post fintech hype era. Incumbent bank innovation is back.
Or maybe incumbent bank innovation was never really a thing until the fintech era hit.
Then two things happened.
First, there were some red hot digital banks. Most of them became far less hot or failed as complex banking realities set in. But there are still notable winners like UK-based Revolut valued at $40 billion, which the FT reports is the same as Lloyds Banking Group and higher than UK lender NatWest and Paris bank Societe Generale.
Second, countless fintech software firms were created to power banks and lenders. Same story here: some were red hot after signing giant banks as customers, and less hot after those banks took development in house.
Now this McKinsey estimate saying 40-60% of software development is being done inside big banks (and 80%+ in pioneering cases) suggests that big banks have matured well with the innovation era.
Makes sense too. Banks arguably understand the ops and regulatory components of their business better than the fintech software firms selling to them. Tech itself finally caught up. Now banks are figuring out the tech.
And from a talent perspective, tech innovators don’t necessarily have to go start fintech software firms to move the needle — they can find that stimulation inside the banks and lenders.
This isn’t to say that fintech software firms aren’t needed. They’ll always be needed, and banks/lenders will always use them. But it is good to see banks/lenders getting tech savvy too.
And certainly the consultants play a role in banks’ digital savviness.
As for the fintech software ecosystem, the cycle will always serve good teams well. On the theme of hot fintechs with big bank customers eventually losing some of those customer, here’s they can still find respectable exits.
What are your thoughts on this build vs. buy bank/lender innovation theme?
Reach out or comment below.
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Reference:
– A live take from McKinsey’s 21st Global Digital Banking Conference: Here come the incumbents