Banking as our fathers knew it is a thing from the past. Nowadays, Banks with big branches do not exist and in a few years they will be a fairy tale only seen on screen.
To survive Banks need to embrace the FinTech ecosystem and adjust to the new world through collaboration. Banks with no physical branches and Bank as a service are the future. And the future is just around the corner.
Over the past few years, challenger banks have risen as competitors to the large established lenders, providing a digital current account and money management services. With digital-only banks promising lower fees, better customer service, and snazzy user interfaces, they have long been threatening to replace the traditional high street giants.
Initially there was a vision that FinTechs would eventually get away with replacing banks, however, there has been a shift in sentiment. FinTechs have begun to realise it would be difficult for them to get clients, even if they provide a great service and the best technology, they would have to spend a lot to bring on customers. Instead, these technologies could be integrated into solutions which the banks do require. Assuming they can be integrated within the core banking system, they can leverage the bank’s ability to be a service provider and the process for them will much quicker.
So, perhaps the winning model will be a hybrid, so not just a bank or a FinTech. It is impossible for banks to keep up with innovation and technology, so ultimately, they will have to adjust to this new world. The FinTech ecosystem will really allow them to do so, and the sooner the banks embrace this model, the better it will be for clients.
Despite the market seeing a move towards more and more collaboration, competition for the bank’s business doesn’t just come from FinTechs. There are some larger players in other markets coming in and effectively replacing some parts of the bank, for example players like Alibaba, Starbucks and Amazon are now suddenly supplying credit and payment services. They aren’t FinTech, but they are playing the role of the banks and attracting clients and providing an alternative service.
With the future of banking lying in the ‘hybrid model’, Pedro Pinto Coelho, Banco BNI Europa CEO argues that a bank doesn’t need to be completely started from scratch. Instead, they can ‘catch up’ by doing the partnerships BNI Europa is doing.
Launched in July 2014, Banco BNI Europa has risen to become Portugal’s fastest growing digital-only Bank, aiming to challenge the traditional banking sector through strategic partnerships with fast-moving FinTech businesses, and had won several awards both in Portugal and abroad.
Nowadays, Banco BNI Europa is an international reference as a “Challenger Bank” based on its strategy of open architecture and differentiation. This positioning also allows Banco BNI Europa to stand out as the leader in the new “Fintech” generation of European banks and to continue with significant growth rates. In this context, Banco BNI Europa has also been specializing in the management of alternative solutions for raising funds and credit, having already established partnerships with several European Fintech’s providing term deposits and credit products in several European jurisdictions, namely Germany, United Kingdom, Netherlands, Austria, France, Belgium and Finland. Those credit products include consumer credit, student loans, credit to SME’s, factoring and real estate bridge lending.
“We will certainly be looking at more opportunities in the future to expand our spectrum of offerings, especially in areas where the clients are not necessarily happy with their current encumberments offer,” Pedro Coelho said. In particular, BNI’s focus is on finding technologies that will give the bank an edge over the rest of the market.
“We are not at the stage to start buying FinTechs, we don’t have the resources that the large incumbent banks have,” he added. “But we also believe it is easier to start with collaboration, not necessarily through capital investment but through partnerships, and leave them independent.
“We are different because we are happy to promote FinTech products without any conflicts of interest. We also play a very specific role on parts of the value chain. We respect the independence of the FinTech.”
With a host of partnerships already in the bag, BNI Europa is eyeing more collaborations in future as it looks to tackle the segments of the market which have been traditionally ignored. However, he stressed the importance of finding the ‘right partner’, as some platforms may have difficulties becoming more profitable and trying to prove their model going forward.
“We are looking for players in different markets which allows us to access these markets and diversify. Whether that’s SME lending, consumer lending, discount lending, or student lending etc. We will certainly be looking at more opportunities to expand our spectrum of offerings and towards areas where the clients are not necessarily happy with their current encumberments offer.”
One area of particular interest to BNI Europa is the advancements in Regulatory Technology (RegTech). With the financial services industry facing unprecedented levels of regulation this year, RegTech has promised to ease the burden on compliance officers.
“There is a time frame. We are preparing for PSD2 and we see that as an opportunity as we can access client information from other sources and the other banks,” according to Pedro.
“We are looking at RegTech opportunities because it will reduce the manual labour and the paper work that we have. This is an area that we are looking into and how RegTech company can help us. We have not yet had a partnership but we actively looking, he added.”
Over 60’s turning to digital banking up by 90% during pandemic
More than 90% of people aged over 60 have used online banking for the first time during the Covid-19 pandemic, according to a poll by iResearch Services, highlighting the importance of banks getting digital right in 2021.
In comparison, 17% of people aged under 30 said they were accessing services via an app or web browser for the first time.
The findings show how banks must adapt to help service the influx of new digital users and gain their trust, accelerated by the Coronavirus pandemic. With 97% of 18–24-year-olds trusting their bank with their data, compared to only 33% of people aged over 66.
Commenting on the findings, Gurpreet Purewal, Associate Vice President, Thought Leadership, at iResearch, said: “Our study demonstrates the lasting impact of Coronavirus on how people will access banking services from now on. Banks will be required to refocus on really understanding customer needs in order to engage with the different requirements of each individual customer.
“More than half (54%) of respondents said they are less likely to attend a physical branch after the pandemic. This demonstrates a seismic shift in the way people will access banking services now and into the future.”
In other findings, 63% of respondents said their bank acted in their best interests during the pandemic, but a third said they would consider switching their bank for better, more personalised communication.
Purewal added: “On the whole, High Street banks have emerged with great credit from the pandemic for the way they have supported their customers. As the economy rebuilds, it will be more important than ever that they communicate in the right way to help consumers through 2021 by leveraging digital platforms and understanding their needs fully.”
Asked how banks can improve their communication with customers, ‘connecting on a personal level’ ranked highest, followed by ‘more honest and open dialogue’, a ‘demonstration of how they are helping customers’, ‘more creative campaigns’, ‘consistent messaging across channels’ and finally ‘responsiveness to major events’.
Banking on the cloud to create a crucial advantage in financial services
By Rahul Singh, President of Financial Services, HCL Technologies
Once considered a revolutionary technology, cloud is now at the heart of agile and innovative businesses. The financial services industry is no exception, and has been a major adopter of cloud-based Software-as-a-Service (SaaS) for its non-core applications. Functions such as customer management, human capital management, and financial accounting have progressively shifted to the cloud. Several banks have also warmed up to using cloud for services such as Know your Customer (KYC) verification. IDC analysts say that public cloud spending will grow from $229 billion in 2019 to almost $500 billion by 2023, and a third of this will be spent across three industries: professional services, discrete manufacturing, and banking. The time is ripe for an increasing number of financial services providers to consider moving more of their core services to cloud.
Adoption is already on the rise
Earlier reluctance to move core activities to the cloud has softened, and many banks have put strategies in place to migrate services, including consumer payments, credit scoring, wealth management, and risk analysis. This significant change is driven by factors such as PSD2 and open banking, which require secure and cost-effective data sharing.
Regulators too were once cautious in their approach to cloud technology, but this is also changing. The Australian Prudential Regulation Authority (APRA), for example, whilst acknowledging the risks associated with cloud, also recognised the risk of sticking to the status quo. ARPA trusted the enhanced security offered by the cloud, and updated its cloud-associated risk advice. Wisely, APRA recommended that banks must develop contingency plans that allow cloud services to be provided through alternate means if required.
Rising pressure from new challengers
The other pressure for incumbent banks is from next generation fintech firms. These are cloud-native organisations, and are able to onboard customers remotely in minutes, roll out new services in days, and meet compliance requirements at lower costs.
As a result, the need for traditional banks to upgrade core systems and integrate the latest technologies is stronger than ever. The COVID-19 pandemic has been an additional driver, highlighting the importance of upgrading and migrating core systems to the cloud. Financial services organisations have been forced to rethink their approach to digital transformation, and pay special attention to a cloud-aligned culture. The industry is recognising how the cloud can address new and ongoing regulatory changes, meet different demands from customers, support the roll-out of emerging technologies, and enable incumbent providers to respond to the relentless competition from fintech firms.
New year, new priorities
As we enter 2021, financial services providers will need to reset their priorities, and go beyond using the cloud for scalability and cost efficiency alone. The new areas to focus on will include:
- Creating a robust digital foundation: The cloud market is expanding fast, and there is an ever-increasing number of services on offer. Whilst the big three hyper-scalers are the obvious choice, various other players are also gaining traction, such as IBM, Oracle, and Alibaba Cloud. Organisations will need a robust digital foundation to adopt cloud at scale in a secure and compliant way. A well-architected digital foundation, supported by resilient operations, ensures that organisations have continued access to their systems and data, regardless of where employees are located, or what device they are using.
- Adoption of technology platforms: Enterprises are finding ways to reduce complexity by embracing a platform approach, and increasing the speed of business IT consumption. Physical infrastructure is being abstracted into cloud-based platforms, with data consolidated into data lake platforms. Software products like Apigee are being offered as capability platforms to drive better analytics and intelligence.
- Enhancing IT security: Cloud offers organisations greater security than on-premises servers, if implemented correctly. Financial services organisations have relied on control and compliance-based security for years, but these practices are increasingly vulnerable to cyber threats. Whilst service integrators create robust cybersecurity solutions for financial services organisations, cloud providers are also looking to provision industry-specific security and regulatory measures like end-to-end data encryption – making it easier for financial services organisations to be compliant whilst migrating to cloud.
- Driving innovation: Cloud is the fundamental factor behind the ability of fintechs to innovate rapidly. Using cloud, financial services can leverage new technologies and tools like augmented reality (AR), virtual reality (VR), natural language processing (NLP), machine learning (ML) and the Internet of Things (IoT) to unlock new processes that improve customer interaction and experience with portable real-time services. Whilst fintechs have led the way in cloud-based innovation through open banking platforms, some of the leading banks are also adopting cloud to simplify their business processes, including KYC as a Service, to enhance customer experience.
- Enterprise synchronisation: Effective collaboration, both internally and with external partners, is crucial to success in the ever-expanding financial services ecosystem. Cloud allows businesses to integrate collaboration through shared tools and platforms. This is a critical ability as it leads to faster decisions and improved innovation cycles.
Legacy systems hold banks back from improving revenue generation and restrict their ability to build a responsive and resilient business. Cloud is a key factor in the success of challengers: traditional banks have no time to waste in migrating their core systems to cloud and building a secure future.
State of the Industry: optimism high in global financial services, although some key issues cause concern
- Exclusive research from Barclays Corporate Banking reveals the views of financial services leaders from across the globe on a range of key issues
- Recovery from Covid-19 is a key priority for FinTechs over the year ahead, however their number one aim shows the optimism in the sector: focussing on business growth
- Asia-Pacific may be the new focal point for expectations around Open Banking, with interest from Europe dropping year-on-year
- Firms confidence in their own cybersecurity fell 5% versus 2019, with less than half of respondents (42%) feeling satisfied with their own approach to the issue
Key players in the financial services industry are optimistic about the year ahead, according to a new ‘State of the Industry’ report from Barclays Corporate Banking, Alive to Opportunity.
Exclusive research from the bank also highlights regional differences in approaches to regulation, expectations for payment innovation and confidence in cybersecurity.
Optimism for 2021
As the official insights partner of last year’s Money 20/20 global conference series, Barclays conducted a survey of over 200 financial services leaders from across EMEA, the Americas and Asia-Pacific. From these senior executives, Barclays Corporate Banking found that optimism in the sector is high as it enters into 2021.
Whilst recovery from Covid-19 might be seen as a likely top priority for the coming year, it came in second place when respondents were asked what they would be focussing most on during 2021 – with 42% of leaders selecting it. Top spot instead went to ensuring business growth, with nearly three in five (57%) respondents picking it as their main area of concentration.
Commenting on this trend, Phil Bowkley, Global Head of Financial Institutions Group, Barclays Corporate Banking, said:
“Given that 2020 was such a tumultuous year, it is encouraging to hear FinTech businesses are confident and focused on future growth. Many firms have grasped the upheaval of the global pandemic as an opportunity. Covid-19 has driven a huge surge in ecommerce and cross-border business. This has significantly increased flows across FinTech payment providers, which have worked hard to enable cross-border trade, payments and ecommerce. At the same time, the industry has been collaborating with banks to ensure much-needed financial support from government flows to the real economy.”
Regions back themselves on innovation
In a continuation of a trend seen in 2019, respondents often rated their own region as the most likely source of future innovation. This ‘home’ bias was particularly strong in Asia-Pacific, where China, India, Japan and Southeast Asia together claimed over 83% of regional votes when considering the key sources of innovation over the next five years.
However, China’s reign as the most likely site of financial services innovation did not continue from 2019, with Barclays’ most recent survey showing that nearly one in four (24%) key industry leaders now view the United States as the most probable location for the rise of payment innovation over the next five years.
A shift eastwards for Open Banking?
Barclays’ research also suggests that Asia-Pacific may be the new focal point for expectations around Open Banking, with interest from Europe dropping year-on-year.
In 2019’s report, the impact of this key regulation was anticipated to be strongest in Europe – however, this time round just 38% of EMEA leaders now expect Open Banking to have a big impact on their business. By contrast, the majority (59%) of senior respondents from Asia-Pacific feel that the regulation will be key for their companies as we move into the remainder of 2021.
Security and resilience in a post-Covid world…
Firms’ confidence in their own cybersecurity dropped by 5% versus 2019, with less than half of respondents (42%) feeling satisfied with their business’ approach to the issue. Businesses in EMEA feel least confident about their security provisions, with one in three (33%) indicating that their own cyber security needs further investment.
The importance of resilience to customers was also a theme that many felt would rise in significance in 2020, given the recent growth in remote working as a response to Covid-19 – however just 5% of respondents viewed this issue as important when considering customer loyalty.
Steve Lappin, Managing Director, Barclaycard Business, said: “From remote working to e-commerce, coronavirus has meant that digital channels play a much greater role in working life. While this has undoubtedly presented new opportunities, it has also put additional pressure on infrastructure and heightened potential vulnerability to attacks. Therefore, it’s not surprising that confidence in cybersecurity has dropped, with many firms feeling that their rapid adoption of these new channels has left governance and control lagging behind. It’s critical that businesses remain vigilant – security may not be a key driver of customer loyalty, but cybersecurity issues are definitely a driver of disloyalty.”
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