Transforming Financial Services: A CIO's Take on Money 20/20's Biggest Takeaways
Chief Innovation Officer
Tech Leaders Corner
As the financial industry stands at the cusp of a new era, our CIO returned from Money 20/20 with a treasure trove of insights.
This post is your gateway to understanding the key takeaways from one of the most influential fintech conferences in the world. We'll explore how traditional banking is being reshaped, the role of AI in financial services, and the emerging trends that are here to stay.
We hope you enjoy the article as our CIO Marcin takes us through his biggest takeways from Money 20/20.
Takeaway #1: Banking is just: Deposits, Loans, and Money Movement
In our first takeaway, I’d like to simplify a complex topic that's been at the core of my interests throughout my years in fintech and banking.
This one insight from the Money 20/20 stage truly resonated with me: At its essence, banking revolves around three pillars: Deposits, Loans, and Money Movement. 🏦
Deposits: The foundation of every bank. It's where the financial journey kicks off for consumers and banks alike. This is precisely what BaaS (Banking as a Service) offers to fintechs without a banking license but wish to provide a wallet-like experience to their users.
Loans: The lifeblood of a bank's revenue. It's more than just lending; it's about smart, sustainable lending, minimizing friction, and adeptly managing risks.
Money Movement: In today's digital age, whether it's wire transfers, remittances, or digital payments, seamless money movement is indispensable.
You might wonder about KYC, risk assessment, fraud detection, compliance, and many more aspects of any Financial Institution? While vital, these are just support functions, designed to enable and bolster the core trio. For example, KYC ensures the legitimacy of deposits and loans, while risk and fraud management safeguard money movements.
🌟 Why It's Crucial for Fintechs
Grasping this trio is paramount. Whether you're crafting a P2P lending platform or a digital wallet, or ID verification service, your success hinges on enhancing flow of deposits, loans, or money movement, or aiding banks in achieving these more efficiently with higher customer satisfaction.
Takeaway #2: Peeling the legacy monolith
In our second Money 20/20 takeaway, we're dissecting a notorious challenge in the banking and fintech realms: the enduring legacy of mainframe core banking systems. So what is the strategy here I witnessed at Money2020 panels?
🦕 The COBOL Conundrum
COBOL mainframes, the banking industry's behemoths, are showing their age. They're unwieldy and rigid, and finding developers who are adept at navigating these prehistoric systems is becoming increasingly difficult. Despite this, they remain entrenched in the fabric of countless financial institutions, making a full system overhaul a daunting prospect.
🛠️ The Modern Solution: Encapsulation and APIs
Encapsulation: Rather than a full-scale replacement, we can encapsulate the old mainframe, integrating specialized products that refresh certain functionalities while keeping the core intact.
📨 APIs: Application Programming Interfaces (APIs) are the linchpin of this strategy. They allow us to interconnect the old with the new, and more new with the new, orchestrating the solutions, creating an adaptable, scalable, and resilient architecture that operates with a near plug-and-play simplicity.
🔍 Why This Matters
We're bridging the gap between yesterday's infrastructure and today's technology, ensuring that banks can step into the future without leaving their foundations behind. The monolithic mainframes of old won't vanish overnight. However, encapsulation and API integration mean we aren't marooned in antiquity.
This method enables banks to evolve and innovate without the exorbitant costs and risks of complete system replacements. For fintechs, it's a gateway to collaboration and integration, providing specialized services that seamlessly connect with existing banking frameworks.
Takeaway #3: RTP – Real Time Processing
The game-changing leap in U.S. finance—Real-Time Processing (RTP). For me, a European citizen, this is obvious. For the US market not so much yet. But thanks to The Clearing House's RTP platform, we're witnessing a seismic shift from the slow dance of batch processing to the instant gratification of real-time money transactions.
🌐 RTP: The New Pulse of Financial Transactions
Imagine transferring money as easily as sending a text message. That's the reality with RTP. It's a 24/7/365 revolution, connecting over 350 participants in a dance of digital immediacy. Gone are the days of waiting for transactions to clear.
🚀 A Clarion Call for Fintech and Banking
For my peers in fintech, payment services, and card issuing, RTP isn't just an upgrade—it's an evolution. This isn't just about tech; it's culture change. It's about meeting the new beat of consumer demands. Adaptation isn't optional; it's critical.
💡 RTP: A Bridge Back for Traditional Banks
For the titans of traditional banking, RTP is a beacon to win back the hearts (and wallets) of customers wooed by the likes of PayPal and Venmo. It's a chance for giants like JPMorgan Chase and Bank of America to sprint ahead in the real-time race.
Looking Ahead: The RTP Reality
RTP isn't waiting in the wings; it's center stage, transforming the financial sector's script. The spotlight is on: How quickly can your organization step into the rhythm of real-time? What other services and added value products can follow? Time will tell!
Takeaway #4: Identity verification providers were the most visible in the expo
In our fourth takeaway, we're zooming in on a trend that was impossible to miss: the commanding presence of Identity Verification providers. Giants like AU10TIX, Socure, Trulioo, Daon, Jumio, and Veriff didn't just show up—they took center stage with their dynamic booths and strategic marketing efforts (shoutout to Au10tix for the genius LinkedIn profile photo booth—what a hit!).
🌍 A Global Reach
These companies aren't just operating on a large scale; they're redefining it. They deliver identity verification for IDs across a multitude of countries, in hundreds of languages. This isn't just a service; it's a global mission to secure and streamline identity verification, no matter what nationality is your customer.
🔐 Why Identity Verification?
In a world where digital transactions are the norm, the need for solid identity verification is more than a trend—it's a cornerstone. From basic ID checks to cutting-edge selfie or video confirmations, these providers are setting the new standard.
🛡️ Implications for the Industry
Security: This spotlight on identity verification is a clear move towards fortified security in finance.
User Experience: The tech being showcased isn't just secure; it's designed with the user in mind—intuitive, quick, and hassle-free.
Regulatory Compliance: As KYC and AML regulations tighten their grip, reliable identity verification transitions from a 'nice-to-have' to an absolute must.
🔮 What This Means for You
For those in banking, fintech, or payment services, this is more than a trend—it's a tidal wave. Ignoring the rise of these global identity verification titans isn't an option. It's about security, yes, but also about aligning with global consumer expectations and stringent regulatory demands.
Takeaway #5: Improve, Don’t Disrupt
In the fifth takeaway of our Money 20/20 series, we're exploring a pivotal shift in the financial sector's narrative: the transition from disruption to improvement. This change, underscored by speakers from regulatory bodies like the FED and OCC, marks a new era in financial services.
🚨 The Wake-Up Call: SVB, FTX, and Crypto Fails
Recent turbulence in the banking and crypto sectors, including the SVB debacle and FTX's challenges, has been a stark reminder of the critical role of compliance and regulatory frameworks. These events highlight the necessity of robust systems to protect assets and ensure a stable financial ecosystem.
🛡️ Compliance and Regulatory: Protectors, Not Obstacles
A key insight from the conference is the repositioning of compliance and regulatory measures. Far from being hindrances, they are essential safeguards, instrumental in maintaining the integrity and stability of financial systems.
📊 Regulators' Perspective: A Balanced Approach
Regulators are recognizing the need to evolve with technological and business advancements. Yet, they maintain a laser focus on customer interests, advocating for a cautious regulatory approach that balances innovation with security and consumer protection.
🌐 Implications for the Industry
Risk Mitigation: The industry is pivoting towards minimizing risks, prioritizing stable growth over disruptive innovation.
Consumer Trust: In light of recent events, building and sustaining trust is more crucial than ever. No cutting corners!
Collaboration: A growing trend is the collaborative effort between the industry and regulators to forge compliant, secure financial solutions.
🔮 What This Means for You
For professionals in finance, the message is unequivocal: the path forward is through improvement, not disruption. It's about crafting innovative solutions within the framework of compliance and regulation, ensuring they are not only groundbreaking but also secure and trustworthy.
Takeaway #6: BNPL and other loan-like products are here to stay
In this section, we're examining a trend that's reshaping consumer finance: Buy-Now-Pay-Later (BNPL), a phenomenon offering both remarkable opportunities and notable challenges.
🏪 BNPL: A Mainstay in the U.S. Market
BNPL has become a staple in both online and offline shopping in the U.S., offering a flexible alternative to traditional credit. It's not just for big-ticket items; you can even split a $6 Uber Eats hamburger into four payments!
🔄 The BNPL Experience: Opportunities and Challenges
While BNPL introduces a new level of convenience, it also brings complexities for both consumers and retailers:
Flexibility: BNPL offers a manageable way to spread out payments.
Risk of Overextension: There's a potential risk of accumulating small debts that can add up.
Sales Boost: BNPL can increase sales and customer loyalty.
Operational Complexity: Managing various BNPL options requires robust systems and careful credit risk management.
📈 The Future of BNPL
BNPL's growth shows no signs of slowing, but its success hinges on balancing consumer empowerment with financial responsibility and operational efficiency. As BNPL continues to evolve, the focus will be on maintaining this balance, ensuring it remains a beneficial tool for both consumers and businesses.
Takeaway #7: AI in “XYZ“ will change everything
Wrapping up our Money 20/20 series with a bang: Takeaway #7 focuses on a theme that resonated throughout the conference—the transformative impact of AI, particularly Generative AI, in the financial sector.
🔮 AI: The Heartbeat of Financial Innovation
From the very first day, it was clear that AI would be the star of the show. Every discussion, every panel, seemed to orbit around one central idea: AI is not just an addition to the financial landscape; it's set to redefine it. Especially now that we have the Generative AI so widely adopted.
🤖 Generative AI: A New Frontier
Generative AI, a subset of AI focused on creating new and original content, is poised to revolutionize several key areas:
Financial Advisory: Imagine AI providing personalized, data-driven investment advice, reshaping the role of financial advisors.
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