Hear us out: Traditional financial services (FS) companies have it rough.

They face pressure to stay competitive – but they also need to adhere to strict compliance and security requirements (rightly so).

With industry disruptors nipping at their heels, established FS companies are faced with a challenging race: maintaining regulatory compliance, while stepping up their pace of innovation.

We’ll dive into some of the challenges traditional FS companies face, how these obstacles are bogging down innovation and three key steps they can take to overcome restrictions and outpace fierce competition.

It’s not that easy being lean

Traditional FS companies are huge. That means they need to work to a wide range of regulatory requirements – from financial stability and customer data protection to operational transparency.

These measures are in place to maintain trust and integrity in the financial sector. They also spell trouble, though, for established FS companies gearing towards innovation.

Regulatory compliance

Large institutions need to adhere to stringent regulations – ones that don’t necessarily encompass their smaller, more agile competitors.

Weaving through this frustrating labyrinth of compliance checks and risk assessments creates a massive regulatory burden. This bloated decision-making process for larger FS companies stifles their innovation.

Implementing a new AI tool in a large bank, for instance, needs extensive validation to make sure it meets regulatory standards – a process that could take months, if not years.

By contrast, without the same logistical speed bumps and regulatory scrutiny, tech-first agile disruptors can implement the latest technologies quickly.

Security

The bigger the institution, the more complex its systems. Traditional FS companies are no different – with a myriad of different departments, teams and technologies at every turn.

Many traditional banks operate on outdated tech stacks, making upgrading and integrating new security measures a risky, disruptive pain-in-the-proverbial.

While sustaining high security standards across all these sprawling systems is costly, it’s also critical for protecting customer data and maintaining trust – a must-have in the financial industry.

Operational constraints

Regulations don’t just affect products and services – they also affect internal operations.

This means extensive internal reviews and approvals processes from multiple departments, including Legal, Compliance, Risk Management and IT.

This slows down adopting new technologies like AI or machine learning, diverting more resources away from technological advancements and pumping the brakes on innovation.

Overall, these are hefty obstacles to overcome. So how can traditional FS companies jump the hurdles while still maintaining their integrity?

Here are our three tried-and-tested recommended steps.

Step 1: Anticipate and minimise risks

The key word here is proactive.

Traditional FS companies can gain the upper hand by implementing systems that can sense and scan the market for emerging trends, technologies and potential disruptors.

Understanding what new technologies are heading onto the market and learning how disruptors are addressing customer pain points lets these companies gain the upper hand. They can proactively anticipate risks and adjust their strategies before these risks even materialise.

Another way to stay competitive is through developing partnerships and incubators, like Barclays’ Rise incubator.

Partnerships with external FinTech startups, or setting up incubator programs within the company, allows traditional FS companies to test new solutions without fully committing. It’s an experimental microcosm of ideas and creativity separate from the company’s core operations.

Not only does this minimise risk – it provides space to explore new avenues for growth.

Finally, involving Governance earlier in the innovation process is another way for traditional FS companies to meet regulatory requirements from the outset.

This helps reduce the pesky delays and compliance challenges they could typically face later if they “act now and ask questions later”.

Step 2: Use the best tools (for you)

There’s a saying that “a bad workman always blames his tools”.

Even if a traditional FS company has legacy systems in place, that doesn’t mean it can’t turn to someone else who has a more tech-first approach.

It’s not one-size-fits-all – every FS company is different! – but there’s bound to be one that overcomes its unique challenges.

For example, established FS companies can work with other entities like startup studios and joint ventures (JVs).

Startup studios focus on one single aspect of FS exceptionally well – like Iwoca, which specialises in business loans and offers much faster approval times compared to traditional banks.

Niche players solve very specific customer problems – like PensionBee, which consolidates pensions from multiple providers into one account.

Instead of reacting defensively to these competitors (making it harder for customers to move their money), or shifting to the offensive and attempting to replicate their offerings (but never quite reaching the same quality), it’s often easiest for traditional FS companies to collaborate with these niche players to provide the best services possible.

Step 3: Focus on immediate value

It can be so tempting to dive in at the deep end and start innovating left, right and centre.

Especially if you happen to be a major, established, successful company.

However, breaking digital transformation down into smaller, more manageable chunks makes the process more feasible and less overwhelming.

Ask yourself: What would be some quick wins that would provide immediate value to my customers?

Klarna, for example, uses AI to draft its legal documents. NatWest uses AI through its chatbot Cora to handle customer queries.

So rather than focusing on one big blowout digital overhaul all at once, the best approach is to focus on incremental transformation.

Quick wins like digital upgrades to improve customer experience, or targeted efforts to streamline internal processes.

Whatever the answer may be, choose something that’ll build momentum and gradually enhance overall digital capabilities.

At CreateFuture, we help traditional FS companies embrace a more practical, people-focused approach to their outcomes.

Working directly with teams, we spot quick wins and implement changes that they can easily iterate, significantly reducing time-to-value. We also make sure these companies make the most of their existing assets while integrating new, scalable technologies.

It’s not just about chasing trends – it’s also about strategically aligning the company’s digital transformation with its broader goals and operational realities.

Pace and compliance: It can be done

Bound by so much red tape, it was never going to be easy for traditional FS companies to dive in at the deep end of innovation. That doesn’t mean they need to be stuck in the Stone Age for new disruptors to have all the fun.

By preempting risks, using diamond-in-the-rough resources like startup studios and breaking down transformation into more bite-size chunks, these companies can face a far more digestible technological future.

With strategic guidance and a focus on immediate value, traditional FS companies can not only keep up with disruptors but put themselves on the podium in the evolving financial landscape arena.