Banks ‘must face up to tech competition’
Written by Peter Walker
In addition to traditional challenges, retail banks globally are now facing new forms of competition: the Open Banking ecosystem, emerging technologies and soaring customer expectations.
This is according to the 2018 World Retail Banking Report from Capgemini and Efma, which surveyed more than 10,000 retail banking customers in 20 countries. The report found that:
• Satisfaction is low: Barely half of customers say their experience across different bank channels was positive (51.1 per cent in branch, 46.9 per cent on mobile and 51.7 per cent on internet banking), despite continued bank investment.
• Consumers are open to BigTech: Nearly a third of customers (32.3 per cent) might consider BigTechs for financial products and services (that includes 43.0 per cent of Generation Y respondents, 53 per cent of tech-savvy consumers and 70.2 per cent of those already likely to switch their primary provider).
• Personalisation is key: Satisfaction was notably higher among those customers who had been offered personalised digital experiences proactively (49.1 per cent) than those who had not (39.5 per cent).
The report also interviewed 60 senior banking executives across 23 markets, finding that the most-cited disruption factor was rising customer expectations, with nearly three out of four executives (70.8 per cent) stating that positive experiences in other sectors meant customers now expect more from their bank.
A majority of executives (58.3 per cent) also said that regulatory pressure was a cause of disruption, while 54.2 per cent identified the increasing demand for digital channels as a factor.
As lines between traditionally different industries now start to blur, banks now face increasing competition from non-traditional firms who are targeting niche areas of the banking value chain, read the report.
“With FinTechs, BigTechs, and other non-FS firms finding their place in the market, retail banking today is all about the customer experience when interacting with their financial institution,” said Anirban Bose, chief executive of Capgemini’s Financial Services Strategic Business Unit.
“As a new, open ecosystem - comprised of customers, traditional banks, non-traditional firms, regulators, and developers - takes shape, there is now a clear opportunity for banks to leverage digital transformation to retain customer relationships by re-inventing the customer journey and creating new revenue streams.”
Despite the reality of growing regulation, non-traditional competition, emerging technologies, and customer expectations, banks are not powerless to use change to their advantage, stated the research.
A significant majority of banking executives (70.8 per cent) think they can ‘generate non-traditional revenue’ via collaboration with FinTech and BigTech providers.
Most banks believe there are untapped opportunities to make more strategic use of data to improve the customer experience: executives said they plan to use customer data to create smoother customer journeys (87.5 per cent), develop relationship-based pricing (75 per cent) and build personalised loyalty rewards (58.3 per cent).
“The retail banking industry is at an inflection point and needs to determine its role going forward in the open banking ecosystem,” commented Vincent Bastid, secretary general of Efma. “It is an exciting time to be in banking as regulation, innovation, competition and collaboration merge to form the bank of the future.”
In July, the European Banking Authority stated that incumbent banks with bad loans and legacy systems risk being left behind by less encumbered challengers.
The European banking watchdog assessed FinTech risks and opportunities in the sector, stating that problems are “particularly challenging for some large complex incumbents” which have “a very formal and slow governance structure, further restricted by legacy ICT systems or legacy non-performing assets”.