25th May 2018

Banks more concerned with technology-driven trends than regulation, says report

Retail bank executives are reviewing their digital strategies, with 61 per cent 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. Although banks are concerned about losing business to new payment players, including the threat posed by Google, Apple, Facebook and Amazon, 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.

The key findings:
• 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 per cent are focusing their digital investment on cyber security, only 17 per cent 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 per cent of respondents), cloud-based technologies (48 per cent), and in modernising front- and back-end systems (37 per cent).
• AI is becoming a key part of the new technology mix, but just over 20 per cent of respondents think it will improve the user experience.
• Over 61 per cent 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.

David Arnott, Chief Executive Officer at Temenos, said: “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.”

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 per cent of respondents were at C-Suite level and 10 per cent were board members. Respondents came from Europe (25 per cent), Asia-Pacific (25 per cent), North America (18 per cent), Latin America (16 per cent) and Africa and the Middle East (16 per cent). In addition, in-depth interviews were conducted with 20 senior executives from banks, Fintech companies and security advisers.