For the banking sector in the EU, it is not enough simply to become digital. Cognizant’s research into “The New Banking Genome: Building the Resilient Bank of Tomorrow” found that PSD2 and open banking make it easier for new entrants to get involved. Above all, the technology giants.
The latest study found that banks and insurers consider the technology giants such as Amazon, Google and Facebook as a major threat, with more than a quarter (28 percent) predicting that these digital giants will become the main competitors of banks over the next three years to grow up. One reason: the PSD2.
On the other hand, more than half (55 percent) of the digital challenger banks (N26, Solarisbank, Revolut & Co.) and three-fifths (61 percent) of the FinTechs have become more confident that they can compete with existing banks.
On the other hand, it is worrying that established banks do not seem to be aware of this, as only a third (36%) perceive the threats posed by the new market scenario. The study is based on the survey of over 300 executives in European banking.
Majority of banks want to maintain legacy service offerings
While the majority of established banks believe they can prevail over current service offerings to fintech and challenger banks, 45 percent fear they might lose the strategic advantage of unsecured consumer credit due to the increase in peer-to-peer lending.
Another serious threat is FinTechs, which operate on a blockchain basis and can attack established companies at numerous points in the value chain of the banking sector. FinTechs are in the process of winning Blockchain, with 34 percent already using this technology, compared to only 17 percent of established banks. The study makes it clear that it would be shortsighted for all players in the industry to believe that Blockchain will not be able to undermine the intermediation of banks within the next five to ten years.
However, the majority of bankers surveyed (77 percent) agree that traditional banks’ access to consumer data is still an advantage over fintech and challengers.
PSD2 enforces new rules for banking
The study also outlines five steps Cognizant seeks to use to transform established businesses into a “resilient bank”:
- Put the customer at the center of the business models: Re-design data and processes around the customer. This starts with the simplification of legacy systems and with automation. Followed by prioritized investments in the digital experience and data analysis.
- Make the marketplace model your own: Open banking is still in its infancy, but has great potential for innovation. Explore the opportunities to leverage FinTech services through white-labeling, and pinpoint partnerships or even the creation of FinTech incubators / accelerators.
- Take advantage of the upcoming regulatory changes as a catalyst for change: PSD2 has the potential to uncover the technological, cultural and customer-driven shortcomings of incumbents. But this regulatory change should be seen as a catalyst for optimization, innovation and transformation initiatives.
- Make culture the growth medium in your Petri dish: culture of innovation must come from above and be focused on a central strategic goal. Communicate this frequently and encourage employee feedback on strategic initiatives.
- Do not Forget the Blockchain: The impact of Blockchain on almost every step of the banking value chain will be profound. Identify potential risks, initiate pilot projects, and then build those projects to stay resilient.
The days of traditional banking, where barriers to entry were astronomical, are coming to an end, and a drastic change in the mentality of the industry’s established sector is needed if it wants to survive the upheaval. European banks must become ever more resilient: they need to redefine their business and business models for the emerging competitive environment, implement new technologies in faster rhythms, and dramatically increase their ability to react to geopolitical changes. The ‘resilient bank’ model could stand up to FinTech’s and help established companies adjust and rebuild their businesses to stay competitive, no matter what kind of stones the new entrants put in their way. “