# Fintechs Must Remove Security and Compliance Friction to Unlock New Growth
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-06-22
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: Is the Golden Age of Fintech Here? UK Records Record
Meta Description: Discover the latest insights on the booming fintech industry, with record investment in the UK and the rise of disruptive business models. Learn how IBM can
URL: https://financedigest.com/fintechs-must-remove-security-and-compliance-friction-to-unlock-new-growthhtml

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_By_ **_Prakash Pattni,_** _Managing Director for Financial Services Digital Transformation for IBM_

Are we living through the golden age of fintech? In certain parts of the world, the [data certainly suggests so as the industry evolves to keep](https://www.financedigest.com/the-challenge-of-keeping-data-secure-why-in-house-security-isnt-enough.html "The challenge of keeping data secure: why in-house security isn’t enough") up with demand and all eyes are closely watching the fintech space. The UK registered a record year in annual fintech investment in 2021, exceeding $11.6bn – a 217% increase from 2020 – according to [Innovate Finance](https://www.financedigest.com/innovations-in-finance.html "Innovations in finance"), the UK’s fintech industry body. That represents 45% of all [fintech investment](https://www.financedigest.com/investing-in-fintech-trends-how-to-get-started.html "Investing in Fintech Trends: How to Get Started") in Europe.

The fintech boom is being driven by a mix of factors, from consumer [demand for personalised digital](https://www.financedigest.com/veraviews-welcomes-hoopla-digital-as-a-demand-partner.html "VeraViews Welcomes Hoopla Digital as a Demand Partner") interactions in all areas of their life, to exponential growth of technologies like cloud, Artificial Intelligence (AI) and blockchain. These technologies are enabling new players to enter the [financial services](https://www.financedigest.com/how-financial-services-are-overhauling-security-to-defend-against-spoofing-scams.html "How financial services are overhauling security to defend against spoofing scams") market with disruptive business models to meet the expectations of customers who are more digitally native than ever.

Large technology companies are now developing banking-as-a-service models to provide [retail banking](https://www.financedigest.com/uk-retail-banks-is-irrelevance-curtailing-opportunity.html "UK Retail Banks: Is Irrelevance Curtailing Opportunity?") services, while the buy-now-pay-later trend has driven growth in embedded finance models. In this bold new world of fintech, businesses like Klarna and neo-bank Revolut have achieved higher valuations than some established [British high street banks](https://www.financedigest.com/hsbc-acquires-british-arm-of-stricken-silicon-valley-bank.html "HSBC acquires British arm of stricken Silicon Valley Bank").

But the established [banks have taken notice and see the opportunities a flourishing fintech](https://www.financedigest.com/fintech-v-the-banks-uneasy-bedfellows-or-a-match-made-in-heaven.html "FinTech v the Banks: Uneasy Bedfellows or a Match Made in Heaven?") sector can offer. More than 40% of UK financial services professionals told an [IBM-Censuswide survey](https://uk.newsroom.ibm.com/2022-01-26-IBM-UK-Survey-Security-and-Regulatory-Compliance-Are-Top-Drivers-of-Modernisation-in-Regulated-Industries-But-Also-Top-Barriers) that their institution plans to modernise in the next five years by evolving to a platform business model using application programme interfaces (APIs) – which support the rapid innovation and rollout of various digital services, from mortgages to payments.

Part of the beauty of this platform model is that it allows [banks to consume ready-to-go innovation from fintechs](https://www.financedigest.com/britain-seeks-to-boost-banking-services-from-fintechs.html "Britain seeks to boost banking services from fintechs") more seamlessly. In many cases, this is still far more cost-effective and efficient for [banks than developing the same offerings](https://www.financedigest.com/first-abu-dhabi-bank-could-renew-35-billion-offer-for-stanchart-bloomberg-news.html "First Abu Dhabi Bank could renew billion offer for StanChart -Bloomberg News") in-house. Given the pressure [banks face to find new revenue streams and keep up with customer](https://www.financedigest.com/christmas-debt-hangovers-how-banks-can-help-customers.html "CHRISTMAS DEBT HANGOVERS: HOW BANKS CAN HELP CUSTOMERS") demands, they are now looking to partner with fintechs as a top priority.

**Challenges**

Yet, a golden age isn’t quite the same thing as a fairytale. Despite the enormous sums of investment, fintechs – and the [financial institutions they need to transact with – have key challenges to overcome](https://www.financedigest.com/3-common-financial-hurdles-for-the-self-employed-and-how-to-overcome-them.html "3 Common Financial Hurdles for the Self Employed (And how to Overcome Them)") to unleash their full potential.

Perhaps the biggest source of friction holding back [fintechs and banks from working together faster are the strict regulatory compliance requirements fintechs have to meet](https://www.financedigest.com/fintech-incubation-more-value-than-meets-the-eye.html "FINTECH INCUBATION: MORE VALUE THAN MEETS THE EYE") before banks can onboard them. It is essential that [fintechs don’t introduce systemic risk](https://www.financedigest.com/brexit-the-risks-to-the-city-and-fintech-have-never-been-greater.html "BREXIT: THE RISKS TO THE CITY AND FINTECH HAVE NEVER BEEN GREATER") into the financial system – otherwise their growth and risk to the financial system will be unacceptable. [Onboarding can be an intensive process](https://www.financedigest.com/fraud-protection-why-customer-onboarding-requires-digital-identity-processing.html "Fraud Protection: Why Customer Onboarding Requires Digital Identity Processing"), often taking as long as  18 months or more. This is too long for many start-ups to wait – they must be able to begin working with [banks quickly in order](https://www.financedigest.com/austrian-regulator-orders-system-relevant-banks-to-up-capital-buffers.html "Austrian regulator orders system-relevant banks to up capital buffers") to achieve revenue targets. It’s also a frustration for banks, which need to be able to seize [market opportunities](https://www.financedigest.com/new-report-of-fuel-conditioning-system-market-with-size-growth-drivers-market-opportunities-business-trends-and-forecast-to-2028.html "New Report Of Fuel Conditioning System Market With Size, Growth Drivers, Market Opportunities, Business Trends And Forecast To 2028") quickly before competitors get there first.

[Security is also a top concern for banks and regulators, particularly when it comes to the use of technology and it’s vital that fintechs align seamlessly with the industry’s stringent security standards](https://www.financedigest.com/why-preparation-for-new-swift-cyber-security-standards-needs-to-start-now.html "‘Why preparation for new SWIFT cyber security standards needs to start now’").

At the same time, [fintechs need](https://www.financedigest.com/if-the-nation-backs-fintech-we-need-to-address-a-few-things.html "If the nation backs FinTech, we need to address a few things") to align with the technological reality of the financial institutions they aim to do business with. With [regulators](https://www.fca.org.uk/publication/finalised-guidance/fg16-5.pdf) insisting banks take measures to mitigate vendor concentration risk, financial services businesses need to operate in a hybrid multicloud environment, which allows them to use different cloud providers across their on-premises and public cloud platforms. [IBM’s research in the UK](https://uk.newsroom.ibm.com/2022-01-26-IBM-UK-Survey-Security-and-Regulatory-Compliance-Are-Top-Drivers-of-Modernisation-in-Regulated-Industries-But-Also-Top-Barriers) found that 87% of financial services firms have already migrated to a hybrid multi-cloud model or planned to do so.

[**Collaboration is key**](https://www.financedigest.com/white-bullets-collaboration-with-polands-sygnal-association-makes-a-significant-dent-in-ad-funded-piracy-in-this-key-european-market.html "White Bullet’s collaboration with Poland’s Sygnał Association makes a significant dent in ad-funded piracy in this key European market")

For most fintechs, [navigating these challenges](https://www.financedigest.com/unfolding-the-great-payments-disruption-how-consumers-can-navigate-this-new-financial-world-and-how-financial-institutions-can-rise-to-the-challenge.html "Unfolding the Great Payments Disruption – how consumers can navigate this new financial world and how financial institutions can rise to the challenge") alone simply isn’t feasible. Fintechs [must team up with a partner that can help them meet the security](https://www.financedigest.com/why-the-finance-sector-must-prioritise-mobile-security-over-innovation.html "Why the finance sector must prioritise mobile security over innovation") and compliance requirements of financial institutions and then deliver the services those institutions need, wherever they need it.

Many financial businesses are recognising that cloud platforms designed for the industry can help with this challenge, by providing [automated compliance controls and enterprise](https://www.financedigest.com/enterprise-automation-is-the-future-of-finance.html "Enterprise automation is the future of finance") grade security technology, out-of-the-box. Nearly 90% of UK [finance professionals have already adopted or plan to adopt some kind of industry-specific cloud](https://www.financedigest.com/why-finance-professionals-must-bank-on-a-journey-to-the-cloud.html "Why finance professionals must bank on a journey to the cloud"), according to IBM’s research.

An [industry cloud platform also forms the foundation of an ecosystem that connects financial institutions with fintechs](https://www.financedigest.com/2022-the-year-that-facial-recognition-will-lead-the-fintech-industry.html "2022 – The year that facial recognition will lead the fintech industry") and other technology providers, in a secure, compliant environment. This [means transactions between all the players in the ecosystem can happen faster and ultimately helps to de-risk the digital](https://www.financedigest.com/making-sure-that-finservs-digital-transformation-doesnt-mean-digital-exclusion.html "Making sure that FinServ’s digital transformation doesn’t mean digital exclusion") supply chain. When a bank and its suppliers are all using the same secure platform, it eliminates complexity and fragmentation in the [supply chain](https://www.financedigest.com/how-to-bring-immediacy-back-to-the-supply-chain-with-faster-payments.html "How to Bring Immediacy Back to the Supply Chain With Faster Payments") – the primary source of IT vulnerabilities that cyber criminals easily exploit.

[**Unlocking the next phase of fintech growth**](https://www.financedigest.com/addressing-the-credit-gap-to-unlock-economic-growth-in-africa.html "Addressing the credit gap to unlock economic growth in Africa")

The fintech sector has undoubtedly enjoyed [rapid global](https://www.financedigest.com/n95-masks-market-rapid-expansion-of-the-life-science-industry-is-anticipated-to-drive-the-global-market.html "N95 Masks Market: Rapid Expansion of the Life Science Industry is Anticipated to Drive the Global Market") expansion. But [financial regulators are catching up with the new business models and technologies](https://www.financedigest.com/shakedown-on-horizon-for-financial-technology-world.html "Shakedown on horizon for financial technology world") that have risen to prominence – from cloud and AI to digital assets – and the needs of financial institutions are evolving accordingly.  Unlocking the fintech sector’s next phase of [growth will require collaboration with partners that can combine deep financial services expertise with technological](https://www.financedigest.com/venom-foundation-and-hub71-partner-to-accelerate-growth-and-adoption-of-blockchain-technologies-from-abu-dhabi.html "Venom Foundation and Hub71 Partner to Accelerate Growth and Adoption of Blockchain Technologies from Abu Dhabi") solutions that remove obstacles to new business opportunities with financial institutions. When that happens, the opportunities for the entire [financial services](https://www.financedigest.com/devops-the-secret-tool-thats-transforming-financial-services.html "DevOps: The Secret Tool that’s Transforming Financial Services") ecosystem – and society at large – really will be golden.


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