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Editor’s blogOctober 18 2017

Are bankers obsessed with regulation?

A survey released at Sibos 2017 shows that bankers think the industry is being driven by regulation while fintech entrepreneurs think it is all about customer expectations. There is a message here, writes Brian Caplen.
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Bankers can be forgiven for being obsessed with regulation. Since the financial crisis, there has been an onslaught of new regulation that has turned banking upside down. First came the safety first stuff – more capital, more liquidity, less risk taking – followed by efforts to open up the sector to new competition and to push it to embrace new technology. The EU's Payment Services Directive 2 being the prime example of the latter trend. 

In this sense, the 65% of banking respondents in a survey conducted for the World Payments Report (WPR) 2017 were correct in picking regulatory initiatives as the leading driver of structural change. The WPR is an annual piece of research produced by Capgemini and BNP Paribas and the latest report was discussed at this year's Sibos in Toronto.

With fintech respondents, only 34.8% pick regulation as a key driver of structural change whereas 56.5% choose customer expectations for value-added services and the same number identify the emergence of enabling technologies in payments (both given 40% by the banking sample).

One has to be a bit worried about the banks on this evidence. True, they are all talking about partnering with fintechs these days and one of their contributions to the collaboration will be providing regulatory headroom. But if it is only about regulation, the banks are in danger of missing the big picture. If what they come up with, in the clamour to establish payments ecosystems (the central theme of WPR 2017), fails to excite the customer, they may as well throw in the towel now. 

The image of the banks carrying the burden of responsibility while the fintechs dream up a new world carries on in a second WPR 2017 survey on current challenges being found. Top of the list for banks are cybersecurity and data privacy; top for fintechs is "lack of agility in operations to adapt to new ways of working". In other words, fintechs can see the future, they are just not sure that their all-too-human employees have the wit to keep up. 

Almost certainly the next stage of financial services development is going to be a hybrid of traditional practice and new ideas brought about by fintech/bank collaboration and competition. But it would still be helpful for the banks to leave their regulatory worries aside and do some out-of-the-box thinking. At the end of the day, all ideas have to get past compliance but that should not inhibit the ideas process.

Brian Caplen is the editor of The BankerFollow him on Twitter @BrianCaplen

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