By 2020, more payments will flow via fintech firms than traditional banks
And retail banking will be fully automated by this date
These are just two of a number of predictions made by senior retail banking executives around the world who were surveyed for Retail Banking: In tech we trust, a new report from the Economist Intelligence Unit, sponsored by Temenos.
The EIU’s previous reports on the future of retail banking (released in 2014 and 2015) reflected a somewhat defensive attitude from incumbents about the rise of non-financial sector competitors. Times change quickly, however, and most banks seem to realise they are risking their own existence if they choose to ignore the rise of smartphones and the proliferation of real-time, low-cost competitors.
The scale of disruption is unprecedented, across every market, every distribution channel and every single product line. Fintech poses a potentially fatal risk and will be a severe test of banks' IT systems and their ability to respond to rapid changes in customer expectations, short product development times and growing cyber risks.
Discussions now centre on just how quickly and how far transactional banking will be unbundled and margins slashed. Strategically, banks have a number of potential responses. Some are building their own technological solutions, others are buying the fintech upstarts outright, and others are partnering or opening up their bank platforms to give third parties access to customers.
The key findings of the report are as follows:
- The banking world of the future. By 2020 bankers expect the banking environment to be shaped strongly by technology and non-traditional competitors. They believe that retail peer-to-peer (P2P) lending will be available via banking platforms (65%); retail banking will be fully automated (64%); and more money will flow via fintech firms than traditional retail banks (57%).
- Profits face multiple attacks. Business models must adapt to survive. Individually, the "scare scores" attached to changing customer behaviour (22%), new entrants (26%) and new technology (24%) are significantly lower than in previous years; collectively, however, they still represent a significant threat.
- A multi-headed monster. That competitive threat will come from many quarters. Apple Pay and its ilk (20%) and other non-financials (20%) may yet emerge to really upset the traditional banking sector. Robo-advisers could lure away more profitable wealthy (and the not-so-wealthy) clients (17%), and P2P lenders attract dissatisfied borrowers and savers (21%).
Monica Woodley, the editor of the report, said:
"The true winners will have the technology to cope with co-operation. Security and integrity will be as important as cost, efficiency and speed. But even the winning banks could be reduced to a mere screen icon for many customers, becoming the trusted platform via which consumers access a range of services from third-parties like fintechs."