- Regulators shape bank strategies with regulations cited across the top 3 biggest impacts on banking to 2020
- Report says 56% of retail banks agree more payments will flow via fintechs than banks by 2020
- 34% of banks are focusing digital investment in cyber security
With the EU’s Second Payment Services Directive (PSD2) and open architecture framework set to come into force next year, regulation may well tip the scales between banks and fintechs for customer loyalty. Concessions must be made on both sides along the way, but in the end the collaborators will be the ones to survive – that’s according to an in-depth study by the Economist Intelligence Unit (EIU), sponsored by Temenos.
The report explores one central theme: ‘Symbiosis: Your bank has your trust. Can fintech make you love it?’ The report, the fourth in a series, offers a new twist in the ‘tug of love’ story of banks and fintechs under changing regulatory and compliance rules.
Renée Friedman, the editor of the report from the Economist Intelligence Unit, says: “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.”
About the survey
The Economist Intelligence Unit surveyed 200 senior retail banking executives about regulatory, customer, security and technology influences on the industry up to the year 2020.
In addition, in-depth interviews were conducted with 36 senior executives from banks of all sizes, start-ups, venture capitalists and mutual fund managers.
The key findings show:
• The regulators will decide. Capital and compliance will shape incumbents and newcomers alike. Banks cite regulation as the most impactful trend in the coming years: bank capital requirement regulation (54%), bank product suitability regulation (53%), product design and transparency regulation (47%); regulatory fines & recompense orders (30%)
• Into the Unknown: American banks worry about regulation the most, despite a promised rollback. European policy direction is more certain yet onerous.
• Resistance is futile. The EU’s Second Payment Directive (PSD2) and open architecture are game changers. Banks may lose their customers’ loyalty, fintech could hit compliance barriers.
• Complacency is not a virtue. Fear of peer-to-peer lenders and robo-advice may have peaked. Non-banks could still steal deposit and lending business – and profit unless banks improve the customer experience.
• No cash, no cheques. If banks are smart, they may still win the war to build truly universal digital networks.
• Banks main concerns on cyber security are lack of system preparedness in the event of a cyber-attack (65%) and the ability to maintain data security (60%)
• The possibilities of blockchain are still not fully understood; 34% think of it only as a tool to reduce financial crime while 34% see its greatest value in increasing the speed and reducing the cost of back office functions
• The majority of bankers surveyed (55%) think that Anti-globalisation movements will negatively affect retail banking by 2020.
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Founded in 1993 and listed on the Swiss Stock Exchange (SIX: TEMN), Temenos Group AG is the market leading provider of software for retail banking, transaction banking, private wealth management, risk and compliance, and fund administration and transfer agency. Headquartered in Geneva with 59 offices worldwide, Temenos software is used by over 2,000 financial institutions across the globe, including 38 of the top 50 banks, to process the daily transactions of more than 450 million banking customers as well as over USD5 trillion in assets for both traditional and alternative funds. Temenos customers are proven to be more profitable than their peers: in the period 2008-2012, Temenos customers enjoyed on average a 32% higher return on assets, a 42% higher return on equity and an 8.1 percentage point lower cost/income ratio than banks running legacy applications.