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Regulation Still Biggest Banking Fear

The implications of new regulations arising from the financial crisis continue to trouble banks the world over, according to the Temenos Community Survey by global banking software provider Temenos (SIX: TEMN). This is one of the key findings of the survey, conducted to understand global banking challenges, investment priorities and industry trends.

Gauging opinion from 190 banking executives across a range of banking sectors in 71 countries, the research confirmed that the impact of regulation remains the biggest challenge facing banks today, with 24 percent of respondents citing this as their primary concern. This finding is consistent with 2010 results, when 29 percent of respondents cited this as their biggest challenge and reflects concern over the impact that new regulation, like Basel III, is likely to have on their businesses.

Other threats have continued to grow in importance among bankers this year. 23 percent of banks cited customer retention as their biggest challenge, up from 17 percent in 2010, as banks come to appreciate that customers are becoming less loyal, more discerning and have more alternatives than in the past. The challenge of retaining their best customers is felt most by private banks (30 percent) and larger banks (31 percent). This concern about customer retention is shared consistently across all markets.

Competition is also increasingly seen as a threat, with 18 percent of respondents citing it as the biggest threat facing the industry, compared to only 12 percent in 2010. The biggest perceived threats come from new entrants (mentioned by 30 percent of respondents), existing large incumbents (19 percent), overseas entrants (18 percent) and peer to peer services (15 percent).

The results also illustrate how banks’ perception of their biggest challenges is influencing corporate investment priorities. Banks named their top three investment areas as being: investment in new products and services, investment in IT and improving risk management. Looking at IT investment specifically, banks are making available more money, with 64 percent confirming that budgets were up on the previous year (compared to 53 percent in 2010), and 26 percent citing that these were significantly higher. The biggest budget rises were seen in the retail and wholesale segments and tier 1 and 2 banks and, as in prior years, the biggest areas of focus are: core banking renewal, risk management and business intelligence.

Ben Robinson, Director of Strategic Planning, Temenos, comments: “The fact that banks are unsettled by new regulations is not surprising given these are likely to weigh significantly on profitability and that their full effect and scope is still being determined. What is perhaps more interesting is the much greater collective concern about competition and customer retention compared with 12 months ago. This research suggests that, in an era of depressed margins, banks are worried about losing their best customers to competitors who can serve them better and their remaining customers to competitors who can service them more cheaply. In response, it is logical that banks should be planning to spend more on core banking software, as this is the most fundamental way for them to lower IT and back-office processing costs while generating the consolidated view of the business that will allow for better risk management and higher revenues”

The research also covered other areas of interest to the banking community, including cloud computing and mobile banking.

Cloud computing continues to draw mixed views among bankers, the majority of which see the key advantage of running a cloud based model being increased organisational flexibility (38 percent of respondents), yet most are still deterred by associated data security and confidentiality concerns (50 percent of respondents) followed by a relatively large proportion citing lack of knowledge as a barrier to adoption (26 percent). However, results suggest that despite these concerns, there could be a softening stance towards cloud adoption, with only 29 percent of bankers confirming they would completely rule out running applications in the cloud, compared to 41percent in 2009.

The research also revealed the increasing importance of mobile banking, with 33 percent of bankers predicting the volume of mobile banking transactions to grow at an annual rate above 50 percent and 13 percent of bankers predicting a growth rate exceeding 100 percent. Unsurprisingly, mobile banking is demonstrating the fastest growth in Africa, where one in five banks expects the market size to double every year for the next three years.

The Temenos Community Survey -

The Temenos Community Forum (TCF) is held annually, each time in a different city. Its purpose is to bring together key Temenos stakeholders – customers, partners, senior management, investors and media – to network, share best practice and learn about what’s new in banking and banking IT.

Temenos conducts this annual poll among this community on a range of subjects. Because of the variety of topics covered, the fact that many of the questions are kept the same year after year (to capture trends, themes etc) and the number of delegates who take part (total sample size for 2011 was 190 banking decision makers) along with their seniority (40 percent C level, 80 percent senior management) and the cross section of banks they represent– the survey acts as a barometer of bankers’ views globally.