Retail bank executives are reviewing their digital strategies, with 61% developing niche propositions and others, to varying degrees, opening up and giving access to new third parties.
Banks are now more concerned with technology-driven trends than they are by regulation according to an in-depth study released by Temenos, a banking software company. Although banks are concerned about losing business to new payment players, including the threat posed by Google, Apple, Facebook and Amazon (collectively known as GAFA), they already have the trust, the data and the connections that the fintech newcomers need.
The report explores one central theme: ‘’ Whose customer are you? The reality of digital banking.” The report, the fifth in a series conducted for Temenos by the Economist Intelligence Unit (EIU), offers a global investigation into the strategic concerns of retail banking executives. It highlights that, as the banking world moves towards the implementation of open banking, all stakeholders need to co-operate to deliver the user experience customers want while keeping their money and data safe.
David Arnott, Chief Executive Officer at Temenos, stated: “Banking has reached a watershed moment with changing customer behaviours, disruptive new technologies and a dramatic increase in competitors from within and outside of banking. The most enlightened banks understand that to become truly digital they need to update their systems front-to-back. This will fulfil their business need for product agility; they can offer the right products, over the right channel, and at the right time. Technology, as the report notes, is now the enabler, which will empower banks to build digital ecosystems and capitalise on the open banking opportunity. IT renovation is key to banks’ strategy and, indeed, their very existence; as they will need to redefine their business models in the new API economy.”
Renee Friedman, the editor of the report from the Economist Intelligence Unit, added: “Although the banks may benefit from the fintechs’ missteps, they must remember that the trust customers have in their bank will mean little if it cannot provide the services that accommodate their lifestyle needs.”
About the survey
The Economist Intelligence Unit surveyed 400 global banking executives about the challenges retail banks expect to face between now and 2020, and the strategies they are deploying in response. 51% of respondents were atC-Suite level and 10% were board members. Respondents came from Europe (25%), Asia-Pacific (25%), North America (18%), Latin America (16%) and Africa and the Middle East (16%).
In addition, in-depth interviews were conducted with 20 senior executives from banks, fintech companies and security advisers.
The key findings show:
- Changing client demand, the rise of the smartphone and the introduction of new digital technologies such as AI and machine learning has replaced post-financial crisis regulation as the drivers of strategic thinking at banks around the world.
- The impact of open banking and tighter security and data rules is not clear. While 71% are focusing their digital investment on cyber security, only 17% are thinking about the risks from third-party relationships as a result of open banking.
- Banks can take the fintechs on by building all-encompassing platforms that are seamless with other products and services. Digital investments are being directed to digital channel delivery capabilities such as mobile (cited by 54% of respondents), cloud-based technologies (48%), and in modernising front- and back-end systems (37%).
- AI is becoming a key part of the new technology mix, but just over 20% of respondents think it will improve the user experience
- Over 61% of respondents still see a place for the traditional transaction-based branch model, nearly twice as many as those who think it will be dead by 2020.
About The Economist Intelligence Unit
The Economist Intelligence Unit deliver vital business intelligence to executives the world over. With access to over 650 expert analysts and editors across 200 countries worldwide, underpinned by an unrivalled in-house survey panel that bolsters the qualitative and quantitative analysis, The Economist Intelligence Unit uncover novel and forward-looking perspectives. The unit apply the same rigour of their editorial heritage to design content that goes beyond the expected. And their reputation for authority and independence ensures access to elite contributors in every market in the world, providing truly distinctive viewpoints.
Temenos Group AG (SIX: TEMN), headquartered in Geneva, is a banking software, partnering with banks and other financial institutions to transform their businesses and stay ahead of a changing marketplace. Over 3,000 firms across the globe, including 41 of the top 50 banks, rely on Temenos to process the daily transactions of more than 500 million banking customers. Temenos customers are proven to be more profitable than their peers: over a seven-year period, they enjoyed on average a 31% higher return on assets, a 36% higher return on equity and an 8.6 percentage point lower cost/income ratio than banks running legacy applications.