The past few years have involved significant advancements in the area of financial technologies – which many simply refer to as “fintech.”
To get an insider’s perspective on what is driving this fintech revolution, and what’s driving banks to become technologists – innovating and implementing new financial technologies – we sat down with Geoff Ois, the director of sales and leasing for DFT Data Centers in Toronto. Toronto is an increasingly active location for data center construction, mostly because of its concentration of banking and financial services companies – including headquarters and offices for many of Canada’s “Big Five” banks.
In part one of our two-part discussion with Geoff, we asked about why these banks – and others – are doubling down on fintech, and the benefits that these new technologies will deliver to banks their customers.
Here is what Geoff had to say:
From the Racks (FTR): Forbes just published an article claiming that "2017 is set to be the year of fintech resilience." What trends are driving this innovation in the financial services space?
Geoff Ois: I’m going to speak about the banks in Canada, because that’s where I’m from, and where I have the most experience. Here, we have five large banks due to government control and regulation. And, historically, it has been very difficult for new, smaller financial services companies to get established as a result.
However, we’re starting to see technology change that. Smaller organizations that are significantly more nimble are developing some of today’s most interesting financial technology solutions. And they’re doing so faster because they’re not as restricted.
These new technologies are making it easier for smaller players to get into the market and compete with the large banks in Canada. And these fintech solutions they’re developing are helping them win customers, giving them an edge and helping them carve out market space from the big five. Now, the big five are trying to innovate to take that market share back.
FTR: What impact will these new technologies have on the financial services companies? What impact will they have on their customers? What new abilities and capabilities are they enabling?
Geoff Ois: Some of the larger benefits and impacts are on the customer side.
These new technologies are giving customers unprecedented access to their money and financial services. They allow flexibility, enabling customers to do their financial planning from anywhere and at any time via their phones and other mobile devices.
Now it’s easy to see why they’d present a competitive advantage. Today’s customers want flexibility and the ability to do things where and when it is convenient for them.
For the banks, the benefits come from the automation that these solutions are creating. Customers accessing their money and purchasing financial services online means fewer branches and fewer employees, which helps reduce their overhead costs.
Also, machine learning, artificial intelligence and other advanced technologies are further pushing this automation by making computers as effective as human employees. Things that previously had to be done by people are now being done as effectively by a new generation of machines capable of learning.
FTR: Was financial services - as an industry - ahead or behind when it came to innovation and the adoption of new technologies?
Geoff Ois: Traditionally, the industry has been behind. But there are reasons for that. Especially here in Canada, the banks are very highly regulated.
For example, the push to the cloud was difficult for our big banks because the cloud was virtually impossible for them to audit. And many of these financial services regulations – especially here in Canada – require them to be able to extensively audit their systems. This meant that they couldn’t take advantage of the new technologies – such as multi-tenant cloud solutions – because they don’t control and can’t audit their systems. As a result, much of their compute and storage had to stay in-house.
And then there are the concerns and challenges that they face regarding cybersecurity. Financial services institutions are some of the largest targets for hackers because they control, manage and hold much of the world’s wealth. A data breach for a financial services company is devastating.
This was another reason why banks were hesitant to host things off-premises. Aside from being more difficult to audit, they feared giving up control of their infrastructure and trusting others to secure it for them. Ironically, these solutions may be even more secure, but the concerns and the auditing challenges were real and impacted their decisions significantly.
FTR: How have the large banks and financial institutions responded to this innovation in the industry?
Geoff Ois: Many of them are getting more aggressive when it comes to hiring technologists and innovating their own solutions to keep up. Many are also using their significant financial means to acquire the smaller companies with desirable fintech solutions.
In Part 2 of our conversation with Geoff, we speak about the data center demands of fintech solutions, and if big banks – and their IT infrastructures – are ready for the fintech revolution.