Banks continue to regard satisfying the demands of better-informed and less loyal customers as their biggest concern, but regulation appears to be less of a priority than in previous years reports Temenos.
The financial institutions software provider and Capgemini have released their eighth annual customer survey. This year’s edition, entitled ‘Shifting Sands: Banking in the Digital Era’, finds that the banking industry’s priorities are shifting as the regulatory burden has eased and the pace of digitisation has increased.
As in 2013 and 2014, the survey found that meeting customer demands remains the banks’ top challenge. However, the number of respondents citing regulation as their top priority dropped significantly, suggesting that banks believe the brunt of re-regulation is now in the past.
Moving up the agenda, more bankers are concerned about their ability to hire top talent (14% of respondents, up from 7% in 2014), their capacity to capitalise on their data assets (15%) and their ability to boost profitability, which remains subdued seven years after the global banking crisis.
Only 26% of respondents cited incumbent banking players as their main rivals, with many regarding those currently outside the current market – such as overseas banks and challenger banks – posing more of a threat. However, non-traditional players, especially technology companies, such as Google, are regarded as posing the greatest threat and were cited by 27% of respondents.
IT investment strong
This year’s survey also finds that banks are responding to their structural challenges by investing in IT systems and innovation, which emerged as the top two priorities. The focus on IT systems has moved from fourth-highest priority in 2014 to top priority this year, as banks begin to grasp what it will take to be successful in the digital age.
Correspondingly, IT budgets are expected to be up strongly again in 2016, with 64% of respondents anticipating higher spend over the next 12 months. “The delta between the number of institutions expecting higher IT budgets compared to those expecting lower budgets is at its highest level since we began the survey,” commented Temenos.
“The findings from this study are consistent with what we observe in our conversations with banks and similar research we’ve conducted in the market,” said Michael Leyva, vice president and global banking practice lead at Capgemini Financial Services.
“Banks are well aware of competitive threats, especially from the challenger banks and “branchless” direct banks. They understand the customer loyalty landscape is changing – for example linked to social media and collaborative loyalty programmes – and are changing their strategic priorities accordingly, with more emphasis on fostering innovation, enabled by renewing technology and hiring the right talent.
“This is consistent with increases in IT budget spend we see, as banks recognise more focus needs to be on digital and supporting data/insights to provide greater customer value which in turn helps to protect the customer base in a highly competitive environment.”
Open banking moves up the agenda
Temenos reports that while still very few banks run mission-critical applications in the cloud, nearly nine out of every 10 banks surveyed is running at least one application in the cloud, against just over 50% in 2009. Regulation and data security are considered to be diminishing barriers to cloud deployment; instead internal factors – especially lack of internal expertise – are increasingly being identified as impediments.
Just over half of this year’s survey respondents see open banking as an opportunity for their business (52%) and essential to deal with the threat from non-traditional competitors (60%). By contrast it is not yet on the radar of the C-suite, where only 5% of innovation spend is being directed towards it.
“This year’s survey shows significant change in banks’ challenges and priorities,” said Ben Robinson, chief strategy and marketing officer at Temenos. “As the burden of new regulation diminishes, banks are concentrating on readying themselves for a more digital world, characterised by lower customer loyalty and new, multiform competitors.
“What is encouraging is the extent to which banks are making the right moves, investing in acquiring the right talent, upgrading their distribution channels and replacing their ageing IT infrastructure.
“Technology modernisation, especially in areas like core banking and analytics, is essential to delivering richer and more personalised banking experiences. And only through increasing customer value-add can banks protect themselves against a more competitive environment.”
Data from S&P Global Market Intelligence suggest that the German lender is struggling to meet capital and earnings figures.
Forecasts for 2016-2020 place Africa as the second fastest growing region in the world (at a compound annual growth rate (CAGR) of 4.3%), just below Emerging Asia.
A recent Gallup poll found that respondents identified the 'economy in general' as their biggest concern.
Sentiment in the financial services sector deteriorated in the three months to September, as firms digested the challenges of lower interest rates and the uncertainty caused by the vote to leave the European Union (EU), according to the latest CBI/PwC Financial Services Survey.