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Monday 17 December 2018


EU banks ‘blind to FinTech competition’

Written by Peter Walker

The second Payment Service Directive (PSD2) and Open Banking reforms are levelling the playfield for new entrants, with 55 per cent of digital-first challenger banks and 61 per cent of FinTechs feeling more confident that they can compete with existing banks.

This is according to research from Cognizant, with also found that incumbent banks seem oblivious to the trend, with only 36 per cent seeing the threats of the new landscape.

The technology consultancy’s Center for the Future of Work spoke to more than 300 European banking executives, revealing that incumbents view existing technology giants such as Amazon, Google and Facebook as a major threat, with 28 per cent predicting that these digital behemoths will be the main competition within the next three years.

While the majority of traditional institutions believe they can maintain a competitive edge over FinTech challengers across existing service areas, 45 per cent fear they may lose strategic advantage in unsecured consumer lending due to the rise in peer-to-peer funding.

The potential for blockchain-enabled firms to disrupt incumbents at numerous points within the banking value chain is also a serious threat, according to Cognizant, with 34 per cent of FinTechs already using blockchain, compared to just 17 per cent of banks.

Despite this, 77 per cent of the banking executives surveyed agreed that incumbents’ access to consumer data is still an advantage over startup challengers.

The research noted a subset of incumbents are emerging as ‘resilient banks’, which have implemented advanced automation of data processing across the front office, embedded real-time data analytics to support core business services in the middle and back office, and embraced public cloud solutions.

The report set out five steps incumbents should follow to become a ‘resilient bank’:

• Put customers at the heart of operating models: reframe data and processes around customers. Start by simplifying legacy systems and applying automation. Then prioritise investment in digital experience and data analytics.
• Embrace the marketplace model: Open Banking is still in its infancy, but it has the potential to scale innovation. Explore the possibilities of white-labelling FinTech services, partnering or even creating incubators/accelerators.
• Use coming regulatory upheaval as a catalyst for change: PSD2 has the potential to expose incumbents’ technology, cultural and customer service shortcomings. But this regulatory change should be viewed as the catalyst to drive innovation and transformation initiatives.
• Make culture the growth medium in your petri dish: a culture of innovation needs to come from the top and pivot a central strategic aim. Communicate this often, and encourage employee feedback on strategic initiatives.
• Do not fall into blockchain oblivion: the ramifications of blockchain at nearly every stage of the banking value chain will be profound. Identify these potential risks, pilot and then build.

Euan Davis, European lead for the Center for the Future of Work, explained that the days of traditional banking - where barriers to entry were astronomically high - are coming to an end and a drastic mindset shift from the incumbent sector of the industry is needed to resist disruption.

“As regulators level the industry playing field, and technology helps to lower the barriers to entry and change the industry dynamics, European banks need to become ever more resilient,” he stated.

“They must redefine their operating and business models for the new competitive environment, rapidly accelerate their adoption cycles for new technology and drastically increase their responsiveness to geo-political change.”

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