Cybersecurity Drives FinTech Challenges
April 7, 2017
New research by international law firm, Simmons & Simmons shows how many
large financial institutions are struggling to innovate fast enough.
Hyperfinance, the firm’s flagship research program, investigates what
large banks and asset managers need to do to succeed in accelerating
their digital innovation and overcome the challenges they face.
- 71% of respondents report
that cybersecurity is the most significant risk associated with
partnering with FinTech firms.
- Approximately one third
expect to acquire a FinTech firm within the next 18 months. Of
the remaining two-thirds,
- 45% cite concerns about
regulatory risk as a key deterrent.
- 55% are building in-house
capabilities. With disruption at the door, incumbents accept the
need to partner and move faster, but say they are poorly
equipped to do so.
- 53% say that there is an
institutional desire to own the IP when working with FinTech
firms, which can stand in the way of effective collaboration.
- 38% say establishing new
business units for FinTech has been the most effective in
improving their digital innovation, putting it ahead of other
strategies that firms are pursuing.
Commenting on the results,
Angus McLean, head of FinTech at Simmons & Simmons says:
“Despite the huge focus on innovation in the sector over the last
few years, there is no doubt that many financial institutions have
struggled to move fast enough. We are now at a critical time for the
industry, as we begin to see which strategies are paying off and
which are failing. Our Hyperfinance report lifts the lid on how the
market leaders are dismantling the barriers to innovation in
financial services and identifies the steps required for others to
Simmons & Simmons sets out six steps to faster digital innovation:
1. Escape the ‘four walls’. Whether it’s creating a
separate legal entity, or establishing an innovation lab within a
start-up ecosystem, careful engagement with the main organisation
can help to ensure that the unit’s innovation is a commercial
2. Adapt the on-boarding process. Adopt a more
flexible and tailored approach. Legal and compliance must be ready
to use a ‘lighter touch’ for lower-risk collaborations with FinTech
3. Get pragmatic about IP. A flexible approach to
IP structuring is crucial. Licensing arrangements are increasingly
important to FinTech firms’ innovation in certain areas, while banks
that are comfortable with licensing structures can become early
adopters – and gain further benefits.
4. Centralise the digital innovation strategy.
Multinational banks and asset managers need a coordinated plan of
attack to stay abreast of new technology. A centre of excellence or
centralised knowledge base is key in efficiently marrying the right
innovations with the needs of the business.
5. Know your partners. There is no substitute for
spending time getting to know the founders and other senior staff in
person. Asking the founders to describe their technology development
cycle and their approach to compliance gives a much clearer view of
the risks presented by an early stage business than asking them to
fill in a 200 page procurement questionnaire and provide a raft of
policies that they may never have read.
6. Pick the right investment model. Outright
acquisition of FinTech businesses could quash innovation where those
firms need to work with multiple players to develop cross-industry
solutions. Taking a minority stake in a FinTech firm (rather than
making an outright acquisition) bypasses this risk, while enabling
financial institutions to get closer to the development of the
is Simmons & Simmons’ flagship research programme. The firm surveyed
200 senior level respondents (30% at c-suite level) across five
financial centres to investigate why most large institutions in the
financial services sector are struggling to innovate quickly enough.
The research shows us how the industry leaders are learning to reach