A report has urged banks and fintechs to come together and collaborate, stating that it is their best chance of survival amidst a changing regulatory environment.
The reasoning behind this outlook is in part due to the incoming Second Payment Directive (PSD2) from the EU next year. PSD2 is a major policy development for the payments industry that will seek to regulate payment services and providers.
The Economist Intelligence Unit surveyed 200 senior retail banking executives with topics centred around regulation, security, customers and the influence of technology on the industry.
54% of banks foresaw regulation will be the biggest trend to impact be the most impactful trend in the coming years, with this broken down to; bank capital requirement regulation (54%), bank product suitability regulation (53%), product design and transparency regulation (47%); regulatory fines & recompense orders (30%).
This increased regulation comes at a time when fintechs are ramping up business, with regulation may proving to be the key factor in the tipping of scales between banks and fintechs for customer loyalty. 56% of retail banks agree that fintechs will be taking more payments than banks by 2020.
It is thought that the increased regulation implemented by PSD2 could draw customers away from the traditional banks, as pressure mounts on them to keep customers through culture and digital strategy alterations. Equally however, fintechs may also face difficulties due to PSD2 and open architecture, as compliance guidelines could stand in their way.
The survey has brought a new line of narrative into the financial services arena, as previously the central question revolved around how banks were going to hold their own ground against emerging fintechs and challengers. Now perhaps joining forces is the best bet for banks and fintechs alike.
Renée Friedman, the editor of the report from the Economist Intelligence Unit, said: “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 survey also extracted the perspective of banks on cybersecurity, and found that 65% of banks are concerned about the lack of system preparedness in the event of a cyber-attack. This percentage is followed closely by 60% of banks who are not confident in their ability to uphold data security.
Additionally, the survey gained insight into the vantage point banks have of blockchain, 34% see it as just being a device for reducing financial crime, with another 34% valuing it as a tool to reduce cost of back office functions while increasing speed.