Retail banks are more concerned with competition from technology companies than from new banks or payment platforms such as PayPal.
Fending off the threats of technology companies such as Google and Amazon will have an even bigger impact on the industry, according to research from the Economist Intelligence Unit (EIU).
Changing customer habits and the arrival of increased competition from technology companies are changing the priorities of the world’s major banks.
As IT giants such as Apple, Amazon, PayPal, and Google encroach on the financial services sector with services matched to consumer behaviour, banks now put the implementation of digital strategy as their number one priority, according to the research.
The EIU report revealed the factors that will have a significant impact on the industry over the next year. Changing customer demands and new entrants and competitors will have a significant impact according to 46% and 35% of respondents respectively. When it came to the biggest competition in the future, 36% said technology companies were the main threats. A total of 21% said that non-financial services firms such as retailers were the biggest threat, only 13% said new banks and 12% said payment specialists like PayPal.
Read more about technology companies in finance
- Internet giants will not try to replace banks but will disrupt the sector through other services that take consumers away from traditional banks, says analyst firm Forrester.
- The chairman of Spanish banking giant Santander is confident that banks can fight off the challenge in financial services coming from the world's technology giants.
- Google has moved further into the field of financial services information enrichment.
Regulation and competition in banking
Santander chairman Ana Botín recently said Apple, Facebook, Amazon and Google are genuine threats to banks. “If you think about the big guys now, it is not the banks, it is these four large tech companies that are worth more than us. They have more cash. They have less regulation,” she told the Financial Times.
The Temenos sponsored research by EIU said meeting regulatory requirements has reduced in importance as a priority. Last year, the EIU report found that 51% of retail banks said regulation would have the biggest impact on their industry in the years up to 2020, but this year only 46% said this is the case.
The future of financial services could see a large number of companies providing services. These might be technology companies offering information enrichment or new banks focused on specific financial products, such as loans savings accounts. These companies will require modern technologies to remain relevant to customers in the age of the digital consumer.
High street banks rise to the challenge
Retail banks are responding to the challenge, said the EIU. It said 46% are implementing a digital strategy; 40% are splitting customers by product and service levels; and 37% are changing the role of the branch network.
Monica Woodley, the editor of the EIU report, said: "The growing ubiquity of smartphones and the experience that consumers have with online giants like Amazon are quickly reshaping what is expected of retail banks. They must respond to these trends or be left behind. Fortunately, this year’s survey shows a growing realisation of this, with increased investment in digital strategies and other customer-centric improvements, as well as examples of where banks are working with new niche players to supply faster, cheaper services.”
The research said 40% of banks expect successful digital strategies to help then sell more products effectively, but only 5% said it will help them retain customers. About a quarter said they might struggle to mine the data they collect, and 18% said they will find it challenging to provide the right data to regulators.