Banks must harness disruptive technologies and create their own or actively participate in digital ecosystems to remain at the heart of the banking universe, according to a global ‘Economist Impact’ study, commissioned by banking software firm Temenos, which surveyed 300 banks across the globe.
The new report, ‘Byte-sized banking: Can banks create a true ecosystem with embedded finance?‘ by Temenos, explains that, as payment companies, technology and e-commerce disruptors increasingly compete against banks with embedded finance solutions, banks must now assess their existing role, and decide how to adapt.
Consumer expectations for more personalised products and services are also having a significant impact on the financial sector; as, more often than not, fintechs are more well-positioned and agile to provide this.
Temenos revealed that around 79 per cent of survey respondents agree that banking will become ’embedded’ in consumers’ lives and businesses’ value chains. One in five banks in the survey expects their business model to evolve in the coming years to offer banking-as-a-service (BaaS) to brands and fintechs and enable embedded finance within their own products and services. Nearly twice as many want to retain the consumer-facing experience and act as a true digital ecosystem themselves.
New technologies are expected to have the biggest impact on banks in the next five years, more than customer demands and changing regulations, according to 63 per cent of respondents.
One bank CEO quoted in the report explained: “If you do not have modern technology, younger generations will not bank with you, it doesn’t matter how long you’ve been around”. Seventy-one per cent of respondents say unlocking value from AI will be the key differentiator between winners and losers with generative AI in particular expected to drive banking by 75 per cent of respondents.
Customer centricity is key
Jonathan Birdwell, global head of policy and insights at Economist Impact, said: “To maintain their direct connection with the consumer, banks are recognising that they must become true digital ecosystems. Customer centricity will also drive banks to offer more embedded ESG and sustainable banking propositions to their customers in the future.”
It is clear that collaboration with fintechs or other technology providers is key to accessing expertise in emerging technologies. With this in mind, banking executives surveyed often expected relationships within the industry to evolve throughout the next three years. As many as 44 per cent believe that banks will acquire majority stakes in fintechs; while 32 per cent believe that there will be market consolidation among challenger banks in the next one to three years.
Kanika Hope, chief strategy officer at Temenos, also discussed the findings: “Banks need to tap expertise in new technologies like cloud and AI as well as collaborate with fintechs and technology companies to offer embedded finance as well as to build digital ecosystems.
“The case for the public cloud is becoming more apparent, 51 per cent of respondents agreeing that banks will no longer own any data centres due to the move to public cloud in the next five years. Environmental concerns have also joined the list of reasons – business agility, efficiency and security – why banks are accelerating the shift to the cloud.”