New research released this week has revealed significant concerns from retail banks about Open Banking regulations and how they can increase competition from tech giants.
In addition, (34%) think traditional banks as we know them will effectively cease to exist by 2023.
A world without traditional banks
The research was commissioned by Pepper, the 100% mobile bank created by Israel’s leading bank Bank Leumi. They interviewed key decision-makers at UK retail banks, such as Barclays Bank, TSB Bank, Virgin Money and Royal Bank of Scotland and revealed that not only do they feel disadvantaged, but many still do not truly understand the innovation going on right now in digital technology.
In addition, 42% disagree that collaboration with fintech’s is needed for retail banks to innovate faster.
Michal Kissos Hertzog, CEO of Pepper, said of the research:
It highlights the size of the disconnect between traditional banks and their customers. Banks are not innovating fast enough, and the value proposition and consumer experience is nowhere it should be.
It's not for lack of trying but the reality is that banks are failing to go fully digital and are falling further behind.
However, it’s not all bad news - banks still retain consumer trust which is a position of tremendous strength and decision-makers understand how they need to improve. Only time will tell if they are able to deliver.”
Struggling to compete
For banks in the U.K., research shows that decision-makers believe traditional retail banks are struggling to compete in the digital era. The vast majority (82%) say banks aren’t innovating fast enough to meet changing consumer demands for digital services, with almost half (48%) thinking that these banks are at least three years behind fintech rivals.
The number one reason cited for falling behind is that there is a reluctance to adopt external technology (65%), followed by a culture that is not innovation focused (57%) and that it takes longer to innovate due to clunky legacy IT systems (53%). A third (34%) admit that innovation is being stunted because retail banks are too focused on product development and streamlining.
Despite this, over half of decision-makers (54%) believe that retail banks “must collaborate” with fintech firms to speed up their own innovation.
Is Open Banking a failure?
One year on from Open Banking, has it failed? Not according to Liz Lumley, Director of FinTech, VC Innovations:
Not much has happened to the industry in terms of Open Banking; but that doesn't mean it is a failure.
Remember, the major incumbent banks were forced to do this by a regulatory mandate - one that was established as a 'framework-based regulation' (which means it can be interpreted) rather than a standards-based one.
Give it time - you wouldn't expect to go from chubby, couch potato to super fit overnight. It takes time and effort.
Education, education, education
Tech giants understand what “Open” means; banks don't. GAFA want the customers - they see the value and covet that customer data. Banks, by nature, do not operate in an Open environment the way other sectors do. They have no frame of reference.
What’s more, the public has no idea what Open Banking is. It was never explained to them in a meaningful way. Education should have come from the big banks… but it wasn't a priority for them.”
Meanwhile, for Hertzog, she still believes that a bright and promising banking future is possible, but only if retail banks put customers at the heart of every decision.
They must forget about product development and cost-cutting; and think differently. All too often banks are too ‘proud’ to adopt technology that is not their own.
They must recognise the importance of collaboration to meet growing customers’ digital demands.
Only then can they truly embrace digital and provide a more consumer-centric banking experience.”