NCFA Fintech Confidential December 2020 (Issue 3)

expertise in risk management and
compliance, funding and scale. But they
view the world in terms of deposits,
loans, payments, and investments. They
see technology as a tool to reduce costs
and increase profitability while meeting
increased regulatory requirements. They
are more focused on their shareholders
than on understanding their endcustomers.
• Fintech companies are customer-centric.
Fintechs are better at understanding
the customer’s needs and their financial
journey. Fintechs leverage technology
to solve customer pain points and offer
a better value proposition. They have
access to talent and are employing design
thinking to develop innovative solutions
that provide a delightful user experience.
So, the technological revolution highlighted in
the title does not refer simply to the emergence
of new technologies or the disruption from
new entrants. It refers to a paradigm shift in
financial services that refocuses on the endcustomer,
their experience and their lifetime
journey.
Briefly, here are three more takeaways:
Technology is not a strategy, it is a tool for
the execution of strategy.
Strategy is the answer to three questions:
where is the organization today, where does
it want to go in the future, and how will it get
there. Technology can provide better tools
for pursuing this strategy, but technological
innovation is not the end goal of strategy
itself. Technology does provide a sustainable
competitive advantage; it is widely available
and can be copied by competitors who are
fast-followers. The biggest barrier to entry in
banking is not technology or even regulation,
but access to customers.
Trust in banking is paramount, supported
by data security and privacy.
become the biggest operational risk. The
approach must be a shift in mindset from “if
we are hacked” to “when we are hacked”.
Finding it fast, disclosing it and dealing with
it immediately, and minimizing the impact on
customers will be critical. Data privacy is a
second critical issue. Consumers and privacy
advocates are acutely aware of the mixed
incentives created by the advertising- based
business models of Facebook and Google.
This is one area where technology (such as
blockchain) and new services (such as digital
identity) can promote trust, by protecting
customer data, privacy, and identity.
Open banking sits at the nexus of these concerns.
We argue that the adoption of open banking
-- in Canada and globally – will increase data
security by putting in place a secure system
for the transmission of data using application
programming interfaces (APIs).
Regulation and risk management remain
pillars of financial services.
Regulation is not going away, nor should
we want it to. Leading financial players –
whether fintechs or incumbents – support
higher regulatory requirements to weed out
bad actors. We argue that maintaining a level
playing field and avoiding regulatory arbitrage
are important. Effective risk management will
continue to be a driver of success in financial
services. Incumbents possess this expertise.
Fintechs and other new entrants will inevitably
need to invest in risk management and
compliance to be successful.
Michael R. King
Lansdowne Chair in Finance
Gustavson School of Business
University of Victoria
IN FOCUS
The loss of trust in incumbents following
the GFC opened the door to new entrants
including fintechs. But trust in financial
services is intertwined with cybersecurity
and data privacy. Cybersecurity has clearly
Richard W. Nesbitt
CEO
Global Risk Institute in Financial Services
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