New financial regulations, including the EU’s Second Payment Services Directive and their open architecture framework that forces banks to share transaction data, may force banks and Fintechs to fight for customer loyalty. Compromises must be made between the competitors. However, according to the banking and finance software specialists, Temenos, the banks and Fintechs that collaborate are going to be the ones that survive.
A Temenos’ release discusses one central idea: ‘Symbiosis: Your banks has your trust. Can Fintech make you love it?’ Their report, the fourth one performed by the Economist Intelligence Unit (EIU) on behalf of Temenos, presents a changing narrative than the typical struggle between traditional banks and the market disruptive Fintechs.
The study shows that new regulations are pointed out as one of the top 3 biggest impacts on the banking industry over the next three years. Retail banks know that the market is shifting, with 56% of them agreeing that more payments will flow through Fintechs than traditional banks by 2020. However, the report also shows potential for collaboration, as 73% of banks surveyed showed concern over cyber threats and 34% investing in cyber security.
Temenos’ CEO, David Arnott, says:
“The struggle between banks and fintechs for customer loyalty is not new, however new regulation and technology change is now driving a shift towards collaboration. Banks with a modern core and an open and flexible architecture will be best placed to seize the advantage and thrive. Temenos is proud to be working closely with banks and fintechs on their digital strategies and championing collaboration via the Temenos MarketPlace”
The editor of the report conducted by the Economist Intelligence Unit, Renee Friedman, adds:
“Banks will increasingly have to adapt their culture and digital strategies to their customers’ needs if they are to compete, not expect their customers to bend to theirs.”
The EIU surveyed 200 executives at retail banks and 36 senior executives from banks of all sizes about technology, customer, security, and regulatory influences in the years leading up to 2020.
The key findings show:
- Capital and compliance will shape incumbents and newcomers alike. Banks cite regulation as the most important trend in the coming years: bank capital requirement regulation (54%), bank product suitability regulation (53%), product design and transparency regulation (47%); regulatory fines & recompense orders (30%)
- American banks worry about regulation the most, despite a promised rollback. European policy direction is more certain yet onerous.
- The EU’s Second Payment Directive (PSD2) and open architecture are game changers. Banks may lose their customers’ loyalty, fintech could hit compliance barriers.
- Fear of peer-to-peer lenders and robo-advice may have peaked. Non-banks could still steal deposit and lending business – and profit unless banks improve the customer experience.
- If banks are smart, they may still win the war to build truly universal digital networks.
- Banks main concerns on cyber security are lack of system preparedness in the event of a cyber-attack (65%) and the ability to maintain data security (60%)
- The possibilities of blockchain are still not fully understood – 34% think of it only as a tool to reduce financial crime while 34% see its greatest value in increasing the speed and reducing the cost of back office functions
- The majority of bankers surveyed (55%) think that Anti-globalisation movements will negatively affect retail banking by 2020.