Data Snacks, Member Exclusive

Data Snack: This year, banks are less optimistic about their future

  • Banks have their work cut out for them with macroeconomic headwinds and rising competition from fintechs.
  • Confidence in the future is swaying due to structural and process-based issues. Could partnering with the right technology company be the answer to these bank woes?

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Data Snack: This year, banks are less optimistic about their future

2023 is around the corner, and so are concerns about transformation and surviving the oncoming recession. Even though navigating the pandemic years was no mean feat, this year banks report being less prepared to deal with future challenges as macroeconomic conditions continue to worsen.

Bar chart showing whether bank executives agree or disagree with their confidence in process and structure, strategy, culture and talent, ecosystem engagement and technology integration. 

The chart shows that confidence is most impacted in the process and structure area.

Source: Sopra

While 'super apps' are all the rage in Latin America and Asia, North American markets have also experienced an uptick in the number of new entrants in the space. Future readiness is most fraught for smaller banks, with competition increasing by 18% in the last year, research by Sopra shows. Most are reporting rising challenges with formalizing internal and external transformation processes as well as strategizing in an increasingly tumultuous market. 

Summary of top challenges for digital banking in 2022. 

Ensuring easy data interoperability internally and externally is a huge challenge so is transforming legacy systems. 
Meanwhile concerns regarding competition and security have abated.

Source: Sopra

Woes of years past continue this year, with troubles with legacy systems and consequent slow transformation experiencing a rise of 6% from last year. Similar increases can be observed in areas relating to data sharing within and outside of organizations.

As covered earlier by Tearsheet, Business Process Automation has been making a splash with banks looking to transform their legacy systems. Those who have already begun this process are noticing some big changes: Citizens Bank was able to cut down its customer onboarding time by 85%, while also allowing its employees to answer questions in real time with a 360-degree view of customer data.

On the bright side, issues like security, customer experience and competition are becoming less daunting as banks try to “future-proof” their business models. One key part of achieving this is building business resilience, but banks are taking this one step further and are now vying for consumer resilience as well. The idea is simple: improving consumer financial wellbeing will have a direct impact on growth, value creation and brand loyalty.

To do this, banks are looking towards a range of action plans, from switching to alternative credit scoring methods to providing financial literacy tools and inclusive products. 

Distribution of how and why banks decide to partner with banking technology providers. 

Most banks are reticent to build inhouse solutions this year. This is true across all transformation usecases but most pronounced for those who are going down the digital transformation route for account aggregation purposes.

Source: Sopra

As the market floods with banking technology vendors, banks are shifting away from building solutions in-house, now more than ever before. The majority now seem to be tilting towards a hybrid approach, wherein they either do a partial integration with a banking software or source all their software from one. This is true across all transformation use cases, but most pronounced for those who are going down the digital transformation route for account aggregation purposes.

One area that stands out is payments, with most organizations building hybrid solutions to offer the best of customer experience without compromising on compliance or KYC requirements. 65% of all banks in 2022 planned to enlist third-party vendors to aid their transformation journey, rather than exclusively building their architecture.  

As wars and clogged up supply chains rock the market in the coming year, banks will have to navigate competition from fintechs as well as divided customer loyalty and attention. Unlike years past, however, a growing focus on consumers’ financial needs and wellbeing is not only refreshing but is indicative of a larger change observed during the pandemic: banks can no longer operate in isolation from their consumers’ needs or their competitors’ focus on CX. In fact, surviving in 2023 is about finding collaborative business models and partnering with the right mix of technology partners. 

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