Regulation Still Biggest Banking Fear, Finds Survey

The implications of new regulations arising from the financial crisis continue to trouble banks the world over, according to the Temenos Community Survey. This is one of the key findings of the survey, conducted to understand global banking challenges, investment priorities and industry trends.

Gauging opinion from 190 banking executives across a range of banking sectors in 71 countries, the research confirmed that the impact of regulation remains the biggest challenge facing banks today, with 24% of respondents citing this as their primary concern. This finding is consistent with 2010 results, when 29% of respondents cited this as their biggest challenge and reflects concern over the impact that new regulation, such as Basel III, is likely to have on their businesses.

Other threats have continued to grow in importance among bankers this year. Twenty-three percent of banks cited customer retention as their biggest challenge, up from 17% in 2010, as banks come to appreciate that customers are becoming less loyal, more discerning and have more alternatives than in the past. The challenge of retaining their best customers is felt most by private banks (30%) and larger banks (31%). This concern about customer retention is shared consistently across all markets.

Competition is also increasingly seen as a threat, with 18% of respondents citing it as the biggest threat facing the industry, compared to only 12% in 2010. The biggest perceived threats come from new entrants (mentioned by 30% of respondents), existing large incumbents (19%), overseas entrants (18%) and peer-to-peer services (15%).

The results also illustrate how banks’ perception of their biggest challenges is influencing corporate investment priorities. Banks named their top three investment areas as being: new products and services, IT and improving risk management. Looking at IT investment specifically, banks are making available more money, with 64% confirming that budgets were up on the previous year (compared to 53% in 2010), and 26% citing that these were significantly higher. The biggest budget rises were seen in the retail and wholesale segments and Tier 1 and 2 banks and, as in prior years, the biggest areas of focus are: core banking renewal, risk management and business intelligence.

Ben Robinson, director of strategic planning, Temenos, said: “The fact that banks are unsettled by new regulations is not surprising given these are likely to weigh significantly on profitability and that their full effect and scope is still being determined. What is perhaps more interesting is the much greater collective concern about competition and customer retention compared with 12 months ago.

“This research suggests that, in an era of depressed margins, banks are worried about losing their best customers to competitors who can serve them better and their remaining customers to competitors who can service them more cheaply. In response, it is logical that banks should be planning to spend more on core banking software, as this is the most fundamental way for them to lower IT and back office processing costs, while generating the consolidated view of the business that will allow for better risk management and higher revenues,” he added.


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