Innovation in Canadian fintech and transformation of the banking model

In 2022, traditional financial institutions are prioritizing catering to their tech-savvy customers, huge investment rounds are driving fintech innovation, and the industry is rebounding from the economic impact of Covid-19. Along with the success of the fintech industry globally, Canada has done particularly well with the support of strong ecosystem partnerships and sophisticated investors.

Fintech investments doubled in 2021 to $132 billion globally according to CB Insights, driven by investments in challengers or neobanks around the world. In Canada, nearly $300 million has gone to fintechs focused on improving the customer experience. Calgary-based Neo Financial is one of the disruptive fintechs aiming to reinvent the everyday banking experience with cloud services powered by Amazon Web Services (AWS).

Speaking to Finextra, Kris Read, Co-Founder of Neo Financial, and Pradeep Dhananjaya, Specialist Banking Solutions Architect at AWS, discuss how fintech companies are thriving by leveraging the cloud and what can be achieved when financial players don’t. are more burdened by infrastructure constraints. .

How can fintech companies meet evolving customer needs while differentiating themselves?

Read highlighted how Neo Financial differentiates itself by focusing on customer needs and embracing modern technology, including AWS infrastructure and services, to personalize the experience. “We had no intention of rebuilding the banking sector the way it works today. We wanted to reinvent banking. This meant starting with the unique needs of the Canadian customer and redesigning products from a clean slate, without preconceptions or technical limitations inherited from incumbent banks.

In response to this, Dhananjaya explained that Neo Financial has a “unique approach to building banking infrastructure and a constant goal of pushing technical boundaries. By owning the whole stack, they have the advantage of being able to scale quickly as market conditions change. Neo has the luxury of being state of the art with an excellent team of engineers to build and maintain the platform.

Fintech companies such as Neo Financial are avoiding the pain points that institutions encounter with outdated infrastructure by building cloud-native platforms. Dhananjaya added that with no legacy infrastructure to manage, fintech companies are “able to create something new very quickly and scale quickly as the user base grows. They are not limited by technology, but are empowered with it, with the cloud allowing them to easily test new features and functionality, without the need for large capital investments. This allows them to be more customer-focused and ultimately more successful. »

How to refine legacy banking initiatives?

In 2021, Neo Financial announced a strategic partnership with Hudson’s Bay Company, one of Canada’s largest luxury retailers, to offer a first digital credit card to its customers. The credit card program allows customers to manage their account from a mobile app, including checking balances, automating payments, and earning points for valuable rewards. Neo built the Hudson’s Bay Card Program on its modern technology stack on AWS. “We wanted to have maximum control over our technology stack, allowing us to make changes quickly as new components become available. Our partnership with AWS has allowed us to test, prototype, and build scalable solutions with their teams of experts, allowing us to innovate faster and at lower cost,” Read said.

Regarding the debate between building and buying, Read said that “it is obvious that if you buy standard software, it allows you to get started faster and many fintech companies or maybe even smaller banking challengers make the choice to go to an enterprise software vendor, buy a bunch of systems, and try to cobble something together.

“By going down this path, the best outcome you can get is copying what’s already available on the market and eventually you hit a ceiling where your ability to innovate is limited, and if you’ve reached a point where you’ve integrated customers on the platform, you probably can’t afford to retool, replace, or modify what you’ve built. So you’re in this trap.

What is real transformation?

Innovation cannot be tied to a legacy system. A truly transformative banking experience isn’t about “beautifying a website,” Read said. Everything should be value-driven, flexible, automated and take advantage of the opportunities offered by technologies such as the cloud.

In Dhananjaya’s view, by owning the entire stack, Neo Financial has a first-mover advantage and the flexibility to transform the stack when and how they want. “If you have a specific need, you can take the leap and consider building something off-the-shelf if that build is going to give you a specific business advantage.”

Neo Financial has prioritized the use of serverless platforms due to their inherent scalability, allowing them to scale their services up and down as business needs change. They also use event communication. This is especially useful during large e-commerce events with high demand peaks such as Black Friday.

As Read said, “if done right, serverless systems save you a lot of time and resources,” leaving much of the infrastructure management to AWS so Neo Financial can focus on building and growing the business. Dhanajaya added that this way of working is called the microservices model, where a large piece of code is broken into smaller pieces of code that provide specific functionality. “By splitting the application, you have the benefit of being able to manage changes incrementally and deploy changes much faster. You can scale individual microservices separately rather than having to waste resources having to scale the entire application. »

What’s next and where is the industry headed?

According to Read, finding technical talent with the right mix of development and cloud skills will always be a challenge for companies, especially as we continue to see demand for technology talent increase alongside increased investment in technology. fintech. Organizations today are therefore looking for talent with the right cultural fit to bridge the gap.

“We are growing rapidly, which can be difficult with the competition for Canadian tech talent. Hiring has been a top priority as we are looking for people who have an innovative mindset and are eager to work with the latest tools to create value for our clients. Our corporate culture emphasizes teamwork, trust and building relationships to experiment, collaborate and create great products for our customers,” said Read.

Dhananjaya agreed with Read and added that the banking industry is changing rapidly. “Customer experience transformation and hyper-personalization are trends that have emerged in recent years and will continue to accelerate,” he said. “For example, you can improve the customer experience by making it easier to access account information, maybe have Alexa check account balances with voice authentication or biometric authentication instead of having to remember a four- or six-digit PIN.”

He added that “when it comes to personalization, banks are collecting large amounts of data and they are going to provide better experiences for their customers. They’re going to offer multiple channels of communication – which customers prefer – and they’ll do sentiment analysis and even up-sell or cross-sell products that are very specific to a particular customer’s needs.

Dhananjaya concluded, “As we all know by now, data is the new oil. These days, organizations are generating more and more data and using that data to improve their offerings. We’re going to see data and AI/ML play a much bigger role in the future, whether in front office functions improving the way you interact with customers, or in the back office improving efficiency. operational.

Many organizations have already begun their modernization process to meet changing customer needs and take advantage of emerging market opportunities.
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