FinTech Intel spoke to Prakash Pattni, managing director of digital transformation at IBM, to discuss its cloud solution, the relationships between fintechs and banks, barriers to adopting new technology, and balancing regulation with innovation
IBM’s Cloud for Financial Services takes care of the security and compliance needs for banks and fintechs that want to join forces.
Banks want to work with fintechs to adopt the latest technology. But as a lot of these fintechs are in the early stages of their development and are not always familiar with the needs of regulated industries like financial services, their security isn’t always as robust as banks and regulators demand.
IBM’s solution handles these regulatory requirements, allowing banks to adopt innovations in weeks rather than months. And it lets fintechs demonstrate their regulatory compliance to banks.
FinTech Intel spoke to Prakash Pattni, managing director of digital transformation at IBM, to discuss its cloud solution, the relationships between fintechs and banks, barriers to adopting new technology, and balancing regulation with innovation.
Fintechs used to be seen as threats to traditional banks, but now many banks see them as partners. What has brought on this shift in perspective?
Fintechs were challenging the traditional banks with new innovations, especially in the retail sector, so they were initially seen as somewhat of a threat.
But what has changed, especially over the last few years, is that banks can see the value they can get from partnering with startups—be that in payments, identity or in any other space.
While many banks still build solutions themselves, other banks prefer to invest in new technology, rather than trying to invent everything in-house.
Banks have seen the value in the innovation from fintechs and how they can get to it much quicker with less risk.
This has led to a real shift in banks wanting to work with fintechs, and are developing these relationships through things like accelerator programmes.
What are the barriers to fintechs partnering with banks? And how is IBM addressing this issue?
Startups need to prove to banks and regulators that they are safe and secure and bad actors are increasingly targeting third parties, like startups, to exploit potential vulnerabilities, to gain access to banks.
All the required due diligence around security and compliance, especially if the startup is not familiar with banking regulations, creates friction and slows down the process of banks adopting new technology from startups.
IBM has been focusing on addressing this issue and removing these friction points so banks can rapidly on-board and adopt startups. This is also something our banking clients have asked us to help them with.
This is one of the drivers that has led to our Cloud for Financial Services, which is built for the industry by the industry.
We have taken on the burden of building controls into our cloud that meet regulations to speed up the onboarding process. This means banks can onboard a fintech in a matter of weeks rather than months or years.
How big a problem is this in the industry?
This is a real pain point in the industry that we are addressing.
Before a bank can use a third party, be that a fintech or other vendor, they will need to complete checks to ensure they meet the security and compliance needs of that bank.
Fintechs can often struggle here with lots of back and forth with the bank, slowing things down. IBM helps them by onboarding them onto our industry cloud, which meets the needs of the financial services industry and through testing and documenting of these security and compliance needs, so they can go back to the bank and show them they have met all of their needs.
We have an industry council of over 80 banks and many of these have shared their security and control requirements with us which we have built into our cloud.
This validation of security and compliance requirements by a trusted partner like IBM speeds up the onboarding process for startups and banks, and avoids the need to repeat the process with every new banking client.
How do regulators balance the need between tough regulations and allowing enough room for fintechs to innovate? And how does IBM speed things up?
There needs to be a balance between regulation and innovation. Because if you overregulate, you’ll stifle innovation as it’s too hard for all these startups to get through all the requirements.
Rather than have everyone hire cybersecurity experts and compliance teams, IBM brings the best of industry practices and does that work for you.
By taking that friction point out, fintechs can continue to innovate. Even if regulations change, we make the relevant changes on our cloud and keep up to date with these changing regulations.
We have more than 100 providers that are working with us and have gone through this due diligence and rigour, and being adopted by banks who see the value and benefits.