October 18, 2017

Compliance & Data Security - How the landscape is changing and can startup banks and fintech keep up?

Pedram Tadayon

Vice-President, Financial Services, Tieto

The technology revolution for banking and financial services started out in the mainframe era. By the end of the 80s and the start of the 90s the “traditional banks” built most of their core technical capabilities still being used today.

Most of us know the challenges that are associated with mainframe including, among other things, high maintenance costs, continuity issues due to old technology and low level of flexibility, and speed to market. Due to these challenges, banks also invest a large part of the IT development capacity to manage compliance and maintenance of their infrastructure.

But how about the startup banks that have been established over the last decade? Most of these are working as tech or fintech companies rather than banks; with focus on fast go-to-market and new financial products and services. They have also attracted some of the best tech people in the industry. The speed of development compared to the traditional banks is much faster and the cost of operation is also lower due to the modern technology, lack of legacy debt and system independencies.

Will startup banks therefore have a huge competitive advantage in IT capabilities compared to the traditional banks?

One key foundation of compliance in the financial industry is that the banks must be equipped with a solid system control and well documented processes. Both when developing new products and services but more importantly in their daily operations. This is where problems arise for the startup banks and fintech companies. The characteristics that have been an advantage with speed and agility can be a significant disadvantage when it comes to compliance.

At some point the phase of developing a new bank/fintech company will shift to the daily operation of the product and features that have already been developed. Topics like information security, documented processes, governance etc. may have been given lower priority when the speed to market and product features were most important.  Startup banks will also be faced with the same compliance challenges as the traditional banks where they must invest sizeable effort in managing compliance issues. The challenges can be significant unless a startup has a balanced product roadmap development and growth activities with compliance work. 

Interested in discussing how you can keep up in Compliance & Data Security? Feel free to contact me >>>

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