Banks should look beyond the fintech threat to modernize

By:
Kimberley Long
Published on:

Banks that believe fintech firms are their primary threat should look instead at how their internal processes are hampering competitive growth.

Banks are very concerned about how emerging fintech firms will take a slice of their business, according to Misys’ white paper 'Digitization in corporate banking – new rails for revenue growth', which assesses the rate of development across the business. 

SME lending was considered under threat by 68% of banks, with 61% believing supply chain finance was being pressured by the new entrants.

Having updated platforms is becoming a key aspect of winning business. Of the global corporate banking customers questioned, 72% stated that assessing digital capabilities was among their top considerations when evaluating their banking providers. While this might appear to point to a favourable environment for fintech, in reality many large corporates still eye such firms with caution.

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Tim Tyler, Misys

Tim Tyler, head of corporate digital at Misys, says the threat of the fintechs is not as aggressive as once feared. In part, this is down to corporates and their counterparties not having the same degree of trust in these providers as they do in banks.

"For banks, the stages of adaptation are not so difficult," he says. "It is a far steeper curve for the fintechs, who need to build up trust in their services and their staying power before many corporates will be comfortable handing their processes over to them.

"It needs to be an integrated relationship, with each party in the transaction process working together to build trust and deliver the risk certainty and speed of execution that corporates need and desire."

Banks nevertheless need to look at the wider landscape to understand how to evolve their processes to meet their customer needs. This might require refocusing their attention internally.

Tyler notes that corporates are increasingly making specific demands for software in their RFPs. However, the need to show where revenue growth will be made from investing in systems is slowing down the process of modernization for many financial institutions. 

"We’ve recently been speaking with four major international banks and they all are impacted by their budget cycles," he says. "They are being pushed to show which changes deliver real value benefits and we increasingly help build business cases based on our experience with other banks."

Some banks have been willing to make the first move. 

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Jurgen Vroegh, ING

Jurgen Vroegh, global head of payments at ING, says they are already seeing investments they have made paying off, adding: "We see that with each improvement we offer our customers that customer satisfaction is rising. That will be our main driver for the coming years, to keep investing in digitalization." 

Chris Barker, head of digital and engineering services at RBS, adds there are varying speeds of benefit to making investments.

"Some returns are almost instant and some by design have a longer payback period," he says. "Typically speed of investment is linked to clarity of opportunity and an articulation of commercial viability.

"It’s somewhat flawed to assume a lack of immediate return slows down the investment opportunity as this is just one dimension of our investment decision."

Where successful developments have been made, these initiatives often come from the top of the institution, rather than from within the transaction banking business. 

ING’s CEO Ralph Hamers stated last week the bank will be investing a further €800 million in updating digital operations.

"More and more the digital strategy from banks is coming from the top down as the C-level is looking end-to-end at how to get high performance corporate banking," says Misys' Tyler.

"Digital strategy is being elevated above the lines of business. This is a more bullish approach enabling real transformation in corporate banking."

Client relationship

Where they are choosing to make their investments can impact the client relationship. Front-office systems are receiving the most attention, with 32% of respondents to Capgemini’s 2015 Banking Executive Interview Survey stating this part of the business was advanced. 

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Source: Capgemini 2015 Banking Executive Interview Survey


By comparison, just 15% stated their back-office systems were to the same standard. However, the lack of work to update these platforms was also found to be a cause of problems for customers.

The white paper points out that no institution has yet completed a full front-to-back overhaul of their systems. Updating systems in an increasingly commoditized product space could create competitive advantage.