Larger institutions are at risk of being outshined by more agile, more streamlined operations
Globally, banks allocate only less than half as much of their information technology budgets to innovation (around 35%) compared to fintechs (more than 70%), according to consultancy McKinsey & Co.
McKinsey warned in its annual industry review that banks’ seeming unwillingness to adapt to the ever-accelerating pace of technological advancements is placing them at great risk of “becoming footnotes to history.”
“We believe we’re in the late economic cycle and banks need to make bold moves now because they are not in great shape,” McKinsey senior partner Kausik Rajgopal told Bloomberg in an interview. “In the late cycle, nobody can afford to rest on their laurels.”
In a recent column for the Financial Post, University of Calgary law professor Ryan Clements said that existings policies do not sufficiently cultivate innovation, as Canada tends to focus on favouring the status quo of large, stable financial institutions.
“Maintaining financial system stability is important, but unless Canada can increase competition in its financial services sector it runs a real risk of falling further behind in the fintech world. Keeping up will require more experimentation in regulation,” Clements wrote.
“There is undeniable interest in fostering fintech, and helpful steps have been taken, the Canadian Securities Administrators’ (CSA) fintech ‘regulatory sandbox’ being a notable example,” he added. “But our lawmakers are cautious, slow to adapt, and reluctant to experiment, and we don’t have the vibrant startup funding ecosystem the U.S. does.”
