Capgemini and Efma have published the World FinTech Report 2020, revealing that despite a widening gulf between traditional banks on one side and BigTechs and challenger banks on the other, incumbents have an opportunity to thrive by embracing Open APIs and becoming more inventive.

The report suggested that the gap between what customers expect and what traditional banks currently deliver has never been wider, and by offering data-fuelled, hyper-personalised experiences in real-time, BigTechs and challenger banks have demonstrated their ability to win customers over.

In contrast, while traditional banks have invested heavily in front-end IT infrastructure to improve customer experience, efforts so far have not measured up to what has become customary across other sectors, especially with tech providers. For banks to remain appealing and competitive in this shifting landscape, the research suggested that they must transform to become more agile and customer-centric.

Both banks and FinTechs are currently frustrated by the lacklustre results of their collaborations to date, with the report revealing several pain-points:

· Only 21 per cent of banks said their systems are agile enough for collaboration.

· Just six per cent of banks have achieved the desired return on investment from collaboration.

· 70 per cent of FinTechs don’t culturally or organisationally see eye-to-eye with their bank partner.

· More than 70 per cent of FinTechs said they were frustrated with the incumbent’s process barriers.

· Half of FinTech executives said they have not found the right collaborative partner.

“Since we began this report three years ago, FinTechs have moved from disruptors to mature players, and it is now essential for incumbent banks to consider them not only as formidable competitors, but as necessary partners of choice to meet changing consumer expectations,” commented Anirban Bose, chief executive of Capgemini Financial Services. “While, for traditional banks, failure is not an option, FinTechs are fast to market yet ready to fail."

According to the report, to remain competitive and appeal to consumers, banks should prioritise middle and back-end transformation through data-driven and customer-centric partnerships with FinTechs, which will ultimately also improve the front-end.

Although overall investment in new IT development (vs. maintenance) increased from 24 per cent in 2016 to 33 per cent in 2019, middle and back-end operations continue to be based on complex, often manual business processes, leading to a fragmented customer experience.

The report highlighted that the front-end last-mile experience - packaging and delivering products to customers - is currently missing the mark, resulting in customers’ dissatisfaction as they feel they do not receive a personalised relationship from their bank (50 per cent) and cannot make direct-debit payments on several merchant sites (60 per cent). Meanwhile, 48 per cent of younger, more tech-savvy customers were frustrated with the narrow range of products and services offered by their primary traditional bank, propelling them to switch within the next year to new-age players as they seek services that match their preferences and integrate with their other applications.

“Traditional banks are at a critical juncture - they must embrace Open X or risk becoming irrelevant,” said John Berry, chief executive of Efma. “In order to keep up with ever-changing customer expectations in today’s marketplace, incumbent banks must transform into inventive banks with collaborative support from qualified FinTech partners.”

The report drew on research insights from the 2020 Global FinTech Executive Interviews and the Capgemini Open X Readiness Index, which evaluates banks based on 98 data points to evaluate their collaboration readiness across people, finance, business and technology.

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