Rapid advances in the financial technology space mean that traditional banking institutions find themselves increasingly open to potentially disruptive competitive forces. New research finds that customers remain weary of both traditional banks and FinTech services, although in key markets such as North America, customers are slightly more keen on FinTechs. Given the difficulty of market access, as well as regulatory requirements and innovation, the research finds traditional players and FinTechs are keen to collaborate – APIs are identified as one possible channel for such collaboration.
Traditional players in the banking industry are often able to trace their roots back centuries. These oldest institutions have weathered various storms, including a global financial crisis largely attributed to their policies, along with continued arrivals of new, innovative competitors in the sector – from credit unions to internet-only banks. Thanks to the age of digital disruption, traditional bankers now face a new era of competitive pressure, some of which have been touted cut deep into the market share they previously relied on.
In a new report from Capgemini and Efma, titled ‘2017 World Retail Banking Report’, the relationship between customers, traditional banking market incumbents and potential disrupters is considered. The research is based on a survey of consumers, as well as surveys and interviews with traditional banks and financial technology (FinTech) players.
One of the key areas in which FinTechs and tech giants entrants to key financial services markets, such as banking, are able to differentiate themselves is front-end service. The entities often curate intuitive, crisp solutions for simple user-interface, whilst offering lower-fees and greater convenience.
According to Capgemini’s survey, there were considerable geographical disparities. In North America, for instance, respondents tended to have a positive experience with traditional banks at 49.5%, although their satisfaction with non-traditional firms came in even higher at 57.8%.
In the EMEA region however, traditional firms were found to have a far lower rate of positive experience at 35.7%, while non-traditional firms actually performed slightly worse at 33.2%. In the Asia-Pacific region, non-traditional firms outperformed traditional firm rivals at 39.5% and 32.6% respectively, however again, neither came close to the popularity of North American institutions.
While satisfaction between non-traditional and traditional players varies across global regions, the number of non-traditionals engaged by customers remains relatively subdued at current levels, with just 2.9% of consumers surveyed using non-traditional firms. Meanwhile a larger minority of 26.5% use both non-traditional and traditional firms.
Of those that use non-traditional firms, 7.4% have a relationship with one, 40.2% with two and 52.4% with three or more. The number of users is higher in Asia however, at a total of 33%. However, the research noted that particularly the non-traditional segment is gaining ground in the lucrative new generation Y and Z segments – with younger customers distrustful of established banking institutions.
To better understand how various user categories are reacting to new types of user experience, the research considered the key ‘moments of truth’ of Gen Y and tech-savvy customers, noting their positivity to non-traditional and traditional firms.
Respondents in the Gen Y segment were particularly positive about accessing loans through non-traditional firms – although they often have poor terms. Respondents tend to be relatively well disposed to traditional firms’ ‘digitally update transaction limit’ capacity, and real-time alert notifications. For the tech-savvy users, respondents noted that they are happiest with the traditional firms in two areas that matter to them most, ‘digitally update transaction limit’ and ‘real time notifications’.
One area in which traditional players and FinTechs are aligning is collaboration – a recent Roland Berger study found that both players are keen to engage in collaboration. BearingPoint meanwhile encouraged banks to engage with telcos in order to utilise new mobile phone interfaces. This research from Capgemini and Efma further shows that both banks and FinTechs are keen to collaborate, with 75.3% of FinTechs and 91.3% of banks stating that collaboration is part of their future strategy.
The acquisition of FinTechs remains a less common approach, with just 4.3% of banks surveyed saying it is part of their strategy, while FinTech respondents were slightly more keen to be acquired by other FinTechs, rather than banks, at 6.2%. A much larger 18.5% of FinTech respondents said that they were keen to maintain their independence and compete on their own, however.
One area in which collaboration can be simplified is through APIs. These provide a clear IT interface between the bank and an FinTech offering that, among others, simplifies collaboration. The research asks both FinTechs and bank respondents to identify where, and to what degree, APIs would bring benefits to their collaboration.
The biggest boost according to both parties comes from an enhanced customer experience, cited by almost 80% of respondents in both groups. FinTechs said it would be likely to bring new revenue streams, at 60% of respondents, followed by 40% of those from the banking sector. 60% of both FinTechs and banks said that APIs were key to boost agility, while around 70% of both groups believe they will lead to new products and services.
Anirban Bose, Global Head of Banking and Capital Markets at Capgemini said, “FinTechs are now earning higher positive customer experience scores than traditional banks, and banks are openly seeking to collaborate with FinTechs. Open Banking offers banks an opportunity to retain and grow their customer base as they add the varied services of third parties to personalise and customise products and services. For banks that don’t think strategically and establish a role in Open Banking, there is a chance they will be disintermediated from their customers. It is imperative that banks consider business transformation approaches now, to establish and solidify their long-term base in Open Banking.”