New banks

Banks want to invest in their digital futures, investors less so

  • Bank investors are resistant to investing in long-term change projects.
  • New research by Oliver Wyman describes a way forward for banks to invest in their digital futures.
close

Email a Friend

Banks want to invest in their digital futures, investors less so

Say what you want about the real competitiveness of new digital banking upstarts, but the future is increasingly digital.

  • For the most part, banks get that and they are actively investing in increasing their tech capabilities — even if it’s a token investment.
  • The average bank invests about 5 percent of its revenue on change programs.

But confidence in these change programs is low. Banks aren’t succeeding in winning investors over to embrace their innovation programs, according to a new study by Oliver Wyman.

  • Without investor support for change, bank planning cycles continue to focus on quarterly returns.
  • Investors in banks generally look at technology as IT, focusing on efficiency improvements as opposed to UX, products, and changing value propositions.
  • They’re also concerned about implementation costs.

But the industry is changing.

  • Financial services are becoming more modular, as APIs become more mature. It’s easier to connect products and services from third parties.
  • Many FIs are concerned about making partnerships from a reactive stance, especially with big tech players.
  • One CEO said it took his firm 100 years to get 10 million customers — a deal with a Facebook or Google could easily double that.
  • And banks are concerned about becoming utilities. They don’t want to be relegated to being just dumb pipes.

There’s been little consolidation but regulators are shifting their focus on “too big to fail” firms to “too small to survive” ones.

  • When consolidation starts to heat up, it’s likely new fintech upstarts like challenger banks will be involved.
  • Challenger banks haven’t been through a full economic cycle and as they become more dependent on lending and interchange fees, it’s likely for a shakeout to happen if conditions deteriorate.

To get investors on their sides, banks will need to convince them that digital investments make sense.

  • Long term projects will need to fit alongside short-term ones that more directly impact earnings.
  • Banks will also have to get better at moving good ideas and projects into implementation and discarding poor ones quicker.
  • Overall, banks have an opportunity to improve the narrative of their digital future.

0 comments on “Banks want to invest in their digital futures, investors less so”

Outlier OpinionsMakers

Member Exclusive, New banks

Banking Briefing: Offering personalized banking in an inflationary environment

  • As the financial situation takes on darker hues for consumers, personalization takes on a whole new dimension.
  • Here's what one neobank is doing to offer personalized services when times are tough.
Rivka Abramson | August 15, 2022
Member Exclusive, New banks

Banking Briefing: Learning the moves to the ‘gig groove’

  • Citi wants to appeal to the gig economy. Meanwhile, banks may be facing major layoffs following their hiring spree just a few months ago.
  • Plus, a quick look at the niche neobank business model dilemma and how a new digital bank for Native Americans has found a way to do things differently.
Rivka Abramson | August 01, 2022
New banks

Marcus by Goldman Sachs’ CFO, Liz Ewing, on consumer finance amid rising inflation

  • Liz Ewing, Chief Financial Officer at Marcus by Goldman Sachs, reflects on the thought process behind the Marcus ecosystem.
  • She also talks about the effects of rising interest rates on consumer finance.
Sara Khairi | August 01, 2022
Member Exclusive, New banks

Can neobanks make it through a recession?

  • Neobanks ended 2021 with some pretty in-your-face funding rounds.
  • But with the fintech landscape hitting a dry spell, neobanks' future success remains questionable.
Rivka Abramson | July 27, 2022
Modern Marketing, New banks

‘When you have a community that’s engaged, your job as a CMO is being an editor’: 3 questions with Vineet Mehra, Chime’s new CMO

  • Vineet Mehra recently became Chime’s new chief marketing officer.
  • Mehra shares how his experience from industries outside of finance has influenced his current role and what vision he has for Chime going forward.
Rivka Abramson | July 21, 2022
More Articles