Andreas Berheide - Fotolia
Financial services technology has overtaken regulatory tightening as the most pressing trend in the banking industry, and could be fatal for banks that make the wrong decisions.
By submitting your email address, you agree to receive emails regarding relevant topic offers from TechTarget and its partners. You can withdraw your consent at any time. Contact TechTarget at 275 Grove Street, Newton, MA.
Fintech, as it is known, will put bank IT departments to the test as they try to stay relevant in a rapidly changing sector, according to Temenos-sponsored research from the Economist Intelligence Unit (EIU).
“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,” the report said.
Regulatory change has been the biggest trend for three years, but now it has been overtaken by fintech, according to the EIU. “Banks may not like the renewed regulatory focus on know-your-client and suitability, but they now have a more pressing draw on their resources – fintech,” it said.
Fintech is a threat across product lines ranging from payments to loans, the report said.
Banks are already reacting through activities such as investing in startup firms in the fintech space, creating startup incubators, and even trying their hand at developing new technologies in-house.
The EIU study, which involved more than 200 senior retail bank executives, showed bankers expect the banking environment to be shaped strongly by technology and non-traditional competitors by 2020.
Read more about fintech
- Consumers are quickly adopting fintech products and services, with young high-earners leading the charge.
- Here are six challenger banks using IT to shake up UK retail banking.
- Here are six IT companies shaking up retail banking.
- The UK could be on the cusp of dramatic changes in retail banking following the launch of a current account comparison service.
Nearly two-thirds (65%) said retail peer-to-peer lending would be available via banking platforms and 64% said retail banking would be fully automated.
According to 20% of respondents, tech firms could emerge as a threat to traditional banks. These firms might lack the branches and specialist financial sector skills, but they do have high-performance IT infrastructures that process huge volumes of transactions every day, and are used by millions of people each day.
It makes some sense to offer financial services where most consumer online activity is already taking place. Facebook has more than one billion users and holds a lot of sensitive data, while Amazon has hundreds of millions of users.
According to the report, banks are pinning their hopes on three things: they are adapting the role of the branch network, getting the right talent (35%), and modernising their technology (31%).
A recent EY study of over 10,000 digitally active consumers in Australia, Canada, Hong Kong, Singapore, the UK and the US found that about 3,000 had used fintech.