A new report from Economist Impact, titled Threat assessment 2022: digital competition in global finance, found 54 per cent of c-suite execs believed their financial institutions have faced greater competition over the past three years from digital alternatives, however, they are now in a better place to compete. The survey which was commissioned by WSO2, a digital transformation technology company, also found 84 per cent of respondents reported that they have, to some extent or more, the necessary technological tools to create new digital products and services
In addition to reviewing the competitive landscape, the report examines how banking institutions are addressing cultural change, embracing digital skills, and relying on technology to achieve a competitive advantage.
Banks Rise to the Digital Competition Challenge
Many of the 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 of these executives predict 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 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, 26 per cent identified increasing competition from banking as a service (BaaS) or embedded finance, such as from non-financial firms including technology companies, and telecoms providers, among others.
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.”