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Traditional banks at a critical juncture, says World FinTech Report 2020
BigTechs and challenger banks are significantly raising customer expectations while traditional banks are falling short, unable to compete with offerings from the new-age players, according to new report by Capgemini and the European Financial Management Association (Efma).
The annual report explores the challenges faced by banks in adapting themselves to the demands of the customers and strategies they should develop to catch up with these new players.
FinTechs present banks with various opportunities to plug identified gaps towards a robust and enabling back-end, which will create an attractive, customer-centric front-end and enable excellent last-mile delivery.
Both Banks and FinTechs are currently frustrated by the lackluster 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 organizationally 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. 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,” comments Anirban Bose, CEO of Capgemini’s Financial Services and Member of the Group Executive Board.
According to the World FinTech Report 2020, to remain competitive and appeal to consumers, banks should prioritize 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 highlighted 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 personalized relationship from their bank (50%) and cannot make direct-debit payments on several merchant sites (60%.)
Meanwhile, 48% of new-age customers (Generation Y and tech-savvy) 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.
"Traditional banks are at a critical juncture"said 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”
The World FinTech Report 2020 draws on research insights from the 2020 Global FinTech Executive Interviews and the Capgemini Open X Readiness Index.
2020 global FinTech executive interviews
The 2020 edition of the report includes insights from focused interviews with senior banking executives of leading banks across regions.
Capgemini’s Open X Readiness Index
Capgemini’s Open X Readiness Index evaluates banks based on 98 data points to evaluate their collaboration readiness across four pillars – People, Finance, Business, and Technology. Each parameter was assigned appropriate weightage, and final scores were mapped on a scatter plot (by rebasing score on 100). Banks’ view of collaboration readiness is represented on the X axis, while the Y axis represents bank collaboration success.