A striking 36 percent of retail banks consider building a greenfield digital bank as central to their innovation strategy, amid a strategic threat from upstart challengers, and opportunities from a wealth of emerging technologies in the sector.
That’s according to a global survey of over 400 banking executives around the world conducted by the Economist Intelligence Unit (EIU) for Geneva-based banking software company Temenos. The report highlights that the strategy is powered by a desire to free new digital-first brands from core system restraints.
Published this week, the report highlights that banks are firmly looking to become digital banks, with 28 percent expecting to offer their own and third-party banking and non-banking products and services: a striking recognition of how fast the sector is changing in the face of ongoing disruption.
“Perhaps inspired by Alipay et al, they want to drop the barriers altogether and become digital eco-systems that are home to a wealth of shopping experiences and lifestyle management. Will they all be able to do so by 2025?”
“To achieve that, banks need a whole lot more technology, regulatory encouragement and a big dose of collaborative spirit” the report notes.
New payment players still represent the biggest threat to retail banks in the short term (29 percent), banking executives say. Other concerns include data security and storage requirements around cloud-based services amid a shift that suggests more retailing banking workloads will be handled in the cloud than on-premises by 2025.
The report notes: “The focus by 29 percent of respondents on savings and deposits reflects the need by all financial services providers to tap diverse sources of funding at the cheapest acquisition cost… However there have been reports in the press of banks shutting down their AI-driven platforms or downgrading growth expectations due to the cost of acquiring new customers and the need for human intervention.”
“Long term, the priority is on mastering open banking (30 percent) and digital engagement (27 percent), both of which require changes to the business proposition and how each bank’s infrastructure interacts internally and with third parties. The short term focus differs, driven by product agility (32 percent) and mastering digital marketing and engagement (31 percent)”.
Among the areas that the report teases out: the extent to which services are now being offered remotely, or automated.
According to Nordea’s Chief Commercial and Digital Officer, Petri Nikkilä quoted in the report, “More than 40 percent of our advice interactions are now remote for consumers. In some markets, more than 50 percent of mortgage conversations are held online.”
Max Chuard, Chief Executive Officer at Temenos, said: “Five years from now, when describing intelligent banking, it will be a bank that is using cloud, AI and other emerging technologies, and will be capable of offering a whole range of innovative services to their customers.”
“Forward-thinking banks are embracing open banking and open APIs to become aggregators or develop digital ecosystems. Others are building new digital banks from scratch and are migrating their existing customers to the new digital stacks.”