World Fintech Report 2020: “Traditional banks are at a critical juncture”
The European Financial Management Association (Efma) and Capgemini have published the ‘World Fintech Report 2020’.
The report reveals a gap between what customers expect and what traditional banks currently deliver has never been wider but adds that: “Now is the right time for banks to catch up from front to back-end to offer the best customer experience.”
It notes that data-fuelled and hyper-personalised experiences in real-time have led Big Techs and challenger banks to demonstrate their ability to win customers over.
“In contrast, while traditional banks have invested heavily in front-end IT infrastructure to improve customer experience, efforts so far have not measured up to what has become customary across other sectors, especially with tech providers,” the pair notes in a statement about the report.
For banks to remain appealing and competitive in this shifting landscape, the report highlights that they must transform into agile and customer-centric Inventive Banks by embracing Open X as well as take on a specialised roles, rather than a universal one, such as supplier or aggregator within the new open ecosystem.
The duo suggests that the way forward is effective structured collaboration for bank and fintech partnerships to be successful.
“Traditional banks are at a critical juncture. They must embrace Open X or risk becoming irrelevant,” says John Berry, CEO of Efma. “In order to keep up with ever-changing customer expectations in today’s marketplace, incumbent banks must transform into Inventive Banks with collaborative support from qualified fintech partners.”
Banks and fintechs are currently frustrated by the lacklustre results of their collaborations to date. The World Fintech Report 2020 revealed several pain-points:
- Only 21% of banks say their systems are agile enough for collaboration
- Only 6% of banks have achieved the desired ROI from collaboration
- 70% of fintechs don’t culturally or organisationally see eye-to-eye with their bank partner
- More than 70% of fintechs say they are frustrated with the incumbent’s process barriers
- Half of fintech executives say they have not found the right collaborative partner
“The world has changed dramatically over the last couple of months. Businesses will evolve and emerge from the COVID-19 crisis in different and profound ways. For traditional banks, this will translate into an even greater need for digital experience through further collaboration with fintechs,” comments Anirban Bose, CEO of Capgemini’s financial services and member of the group executive board.
“Since we began this report three years ago, fintechs have moved from disruptors to mature players, and it is now essential for incumbent banks to consider them not only as formidable competitors, but as necessary partners of choice to meet changing consumer expectations,” adds Bose.
“Effective collaboration requires people, business, and process maturity. While, for traditional banks, failure is not an option, fintechs are fast to market yet ready to fail. Inventive banks with the willingness and capabilities to collaborate at scale and industrialize innovation are most likely to prosper within the shared Open X ecosystem.”
Traditional banks must invest in middle- and back-end operations to deliver a better customer experience.
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According to the World Fintech Report 2020, to remain competitive and appeal to consumers, banks should prioritise middle- and back-end transformation through data-driven and customer-centric partnerships with fintechs, which will ultimately also improve the front-end.
Although overall investment in new IT development (vs. maintenance) increased from 24% in 2016 to 33% in 2019, middle- and back-end operations continue to be based on complex, often manual business processes, leading to a fragmented customer experience.
The report highlights that the front-end last-mile experience (e.g., packaging and delivering products to customers) is currently missing the mark, resulting in customers’ dissatisfaction as they feel they do not receive a personalised relationship from their bank (50%) and cannot make direct-debit payments on several merchant sites (60%.)
Meanwhile, 48% of new-age customers (Generation Z) are frustrated with the narrow range of products and services offered by their primary traditional bank, propelling them to switch within the next year to new-age players as they seek services that match their preferences and integrate with their other platforms/applications.
Improving the full value chain, from front- to back- end, is essential to join the Open X wave and improve top- and bottom-line growth, augment productivity, enhance customer engagement, reduce costs, increase transparency, and boost employee satisfaction.
Its research draws from insights in its 2020 Global Fintech Executive Interviews and the Capgemini Open X Readiness Index.
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