Despite facing greater levels of competition, the c-suite banking industry feels like it has the technology, resources and partnerships to compete effectively.
This was the primary theme of a new report by Economist Impact and WSO2, which examined how banking institutions are addressing cultural changes, embracing digital skills and relying on technology to achieve a competitive advantage.
Out of the 300 c-suite banking industry executives it surveyed, 54 per cent agreed that their financial institutions have faced greater competition over the past three years from digital alternatives.
However, despite the heightened competition from new entrants to the market, these executives also indicated that they are in a better position to compete.
Notably, 84 per cent reported that they have, to some extent or more, the necessary technological tools to create new digital products and services.
The rise of digital competition
Many banking firms have responded to the competition by investing in their digital presence. Among survey respondents, 47 per cent say they are serving customers via digital channels (online or mobile applications) to a large or great extent, and 77 per cent predict that their organisation will serve customers via digital channels to a large or great extent over the next two years.
“All signs in the Economist Impact report point to established financial institutions successfully rising to the digital challenge,” said Eric Newcomer, WSO2 chief technology officer.
”A majority of survey respondents say they have the necessary tools, are culturally ready, and have the talent needed to create new digital products and services, which to me represents a significant change in the industry dynamic.”
At the same time, the growth of new digital entrants in the banking sector is shifting views on who is a competitor versus a potential partner.
Among executives surveyed, just over a quarter identified increased competition from banking-as-a-service (BaaS) or embedded finance, such as from non-financial firms including technology companies and telecoms providers.
Meanwhile, only 12 per cent of survey respondents listed increasing competition from financial technology (fintech) companies – in stark contrast to the widespread fear of competition from fintechs just a few years ago.
Notably, the Economist Impact report cites a 2021 report from banking consultancy Cornerstone Advisors, which found that 48 per cent of banks surveyed had partnered with fintech startups over the past three years.
“The intense competition facing banks is leading to unprecedented digital collaboration,” said Seshika Fernando, WSO2 vice president of banking and financial services. “Banks once jealously guarded their data on proprietary systems to grow their customers and revenue share.
“Today, they are accelerating their growth by partnering with fintechs to add new services, embedding banking-as-a-service solutions in online retail offerings, and tapping the insights of agencies with big data expertise.”