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Banks and fintechs stick close to home

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Domestic European markets remain key for financial institutions focusing on growth, according to the latest Banking Circle research. Anders la Cour, co-founder and chief executive officer of Banking Circle, looks at how attitudes and aspirations vary between western European nations.

Changes in banking have been developing for many years, accelerated by the 2008 financial crash and now by Covid-19. Over the past decade, banks have been building the stronger foundations that are now helping them stand firm in the current crisis, but fintechs have also risen in prominence in the years since the 2008 global recession. The newer entrants may not have the history and established brand that support incumbent banks in tough times, but they are innovative, nimble, responsive and able to meet customer needs in even the most rapidly changing markets.

Banks – whether incumbent or challenger, consumer or commercial – recognize that their technology plays a vital, ongoing role in building an organization that is secure and able to compete with the swathe of fintechs and payment service providers.

In a series of white papers published this year – Ready for the re-build? Re-thinking the value of digital infrastructure – Banking Circle has shared insights into financial institutions’ attitudes towards financial infrastructure. The study found that nine out of 10 institutions are already building technology design and architecture into their business planning. One in five (80% of retail banks and 74% of commercial banks) has already worked with external infrastructure providers.

The third and final paper in the Banking Circle series looks at financial institutions’ attitudes towards international markets and cross-border customers. The white paper Home away from home: No place like home? Domestic European markets hold the key for growth explores the relationship between the provision of financial services infrastructure and business resilience.

It is interesting to see that respondents feel their own region offers the greatest opportunity for growth in the next two years. More than 80% see opportunities within western Europe, far outstripping the rest of Europe (more than 50%), South Asia, ASEAN and North America.

The regional picture

Europe’s financial institutions and fintech providers recognize the role of financial infrastructure in helping organizations to offer new services, respond better to changing customer demands and reach new markets. The survey shows that the sector has made huge strides forward in implementing the technology, infrastructure and mindset needed to respond to industry change. In each country, exceptionally high numbers of respondents said that because they have implemented these measures, they can respond either ‘quickly’ or ‘fairly quickly’ to industry change. However, there were some differences between regions.

All respondents said they had the mindset and infrastructure to respond fairly quickly, or they have invested heavily in their tech stack to be able to move at speed. Danish firms are more optimistic than the average respondents of the survey. French firms are confident about their ability to adapt to change either quickly or fairly quickly.

When it comes to Covid-19 specifically, however, the French are slightly more likely than average to say there will be a significant impact. In Germany, a greater proportion of businesses said they were concerned about economic recession and the impact of Covid-19 on their business planning than their counterparts in other countries.

A greater proportion of businesses in the UK predict a significant impact from Covid-19 than in other countries. However, more UK firms also predict a swift recovery and far fewer said they are freezing all strategic decisions in light of Covid-19. Half of the firms surveyed in the Benelux countries said the pandemic has wide-ranging impacts that will significantly affect their business planning. Half also said they are freezing all strategic decisions in light of recent events.

Looking post-Covid

The survey was carried out in the early weeks of the global pandemic, when businesses were shocked by the societal and political impacts of the Covid-19 response. However, it is clear from the findings that institutions have used their time since the 2008 global recession to rebuild stronger – and the same is happening during this crisis.

Collaboration is a key aspect of a future-proof business, even when the future is unclear. Financial institutions should ensure that business continuity management, business planning and digital technology design are integrated. They should also look for other organizations as potential partnership opportunities, whether current competitors, partners, customers or suppliers.

The retail and commercial banks, fintech providers, payment service providers and payment intermediaries surveyed recognize that their tech stack is much more than an operational necessity – it’s a strategic imperative that plays a vital and ongoing role in building a responsive, agile and lean organization. As the world makes its way out of the current crisis mode, financial services providers must take time to understand the future, use the lessons of 2020 to determine longer-term thinking around the infrastructure that enables success, and at the same time lay the foundations for a collaborative, accessible and future-proof financial ecosystem.

Key findings

  • 48% of all respondents expect business growth of more than 4% in the next two years

    • 59% in Benelux

    • 53% in France

    • 54% in Denmark

    • 43% in the UK

    • 43% in Germany

  • An average of 84% of respondents say Western Europe offers business opportunities in the next two years

    • 100% in Benelux

    • 90% in France

    • 87% in Germany

    • 79% in the UK

    • 73% in Denmark

  • 56% say managing different standards across multiple markets is a challenge to serving international businesses

    • 75% in Benelux

    • 72% in France

    • 54% in Denmark

    • 53% in the UK

    • 39% in Germany

  • 50% say the agility to cater to fast-changing demands is a challenge to serving international or fast-growing businesses

    • 61% in Germany

    • 53% in the UK

    • 38% in France

    • 55% in Denmark

    • 33% in Benelux

  • 92% can respond quickly to industry change thanks to investments in tech, infrastructure and the right mindset

    • 100% in Denmark

    • 98% in the UK

    • 87% in Germany

    • 86% in France

    • 83% in Benelux

Banking Circle has published the results of its study in a series of three white papers, which are available to download here.

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