Are banks really as agile as they claim to be?

Tomorrow is already out of date and life is changing. Fast. No business has been immune to the impact of COVID-19 – including banking. Are banks really as “agile” as they claim to be – and is their underlying problem long-standing internal cultural challenges, rather than legacy technologies? While banks say they’re poised for growth and recovery, many see regulation as a potential blocker to innovation – but are positive about the opportunities created by COVID.

On 25th June, Dave Birch, a recognised industry expert, led an informal discussion for senior executives from European banks to discuss the future of European banking post-COVID. Participants represented a wide range of European and global banks, including NatWest, bunq, HSBC, National Australia Bank, Lloyds, Western Union, Raiffeisen, ndigit and Banque Internationale de Luxembourg (BIL).

To inform proceedings, Banking Circle released a few early findings of its latest industry report commissioned to Magna Carta, which includes interviews with senior industry experts and in-depth survey from across Europe. Panellists featured were James Barker, EMEA Commercial Director at Mambu, and Jason Maude, Chief Technology Advocate at Starling.

Banks’ apparent readiness for change is questioned

92% of a sample of banks, FinTechs and payment service providers taking part in the survey said that they were confident in their ability to change, with 49% citing their heavy investment in technology as evidence of this readiness, and a further 42% saying they had the right organisational culture to cope with change.

Those taking part in our debate cast doubt on banks’ readiness for change. Many taking part said that while it’s possible software engineers and IT departments are flexible and ready to roll out new digital products and services, many banks – especially incumbents – are saddled with procedures and processes that date back decades if not centuries. Since FinTechs have fewer layers of management, they are able to be more lean and agile. That said, our participants agreed that COVID (see point 2 below) had forced many incumbent banks to become more agile.

Digital fluency and green shoots

From our report, over half of bank representatives (58%) were confident in their bank’s capacity to respond well to the COVID crisis, with 32% saying they were well prepared and 26% that they were somewhat ready. More than 50% said they expected their business to grow between 2% and 4% next year, with almost one in five (19%) saying their business could grow between 5% and 10%.

When asked about the reasons for such strong growth, respondents cited their awareness of the power of digital banking as a factor. This digital fluency was most pronounced in the UK and Denmark (64% of respondents), and lowest in France, at 38% of respondents. Top reasons for going digital included lean and agile operations (cited by 76% of respondents), greater automation (67%) and better real-time analytics and reporting (56%).

During the European sundowner, participants agreed that COVID had accelerated transformation in incumbent banks, since the crisis had forced these banks to do a lot of the things they’d previously been considering – such as Cloud data storage, remote working and virtual teams. Incumbent banks also found that their internal systems stood up well to the challenges of remote working. All participants agreed that the next step in digitalisation will be a fundamental change in the banks’ approach to clients, especially in wholesale banking.

For FinTechs, one participant in the debate commented that COVID had been a double-edged sword. On the one hand, FinTechs seeking funding had found it harder to come by; on the other, that same fact had forced them to do more with less – and challengers have been helped by the overall rush to digital during COVID. One example cited was the improved conversion rate from prospect to customer for FinTechs – despite a decrease in marketing spend. Finally, those attending our debate predicted that COVID would lead to a new wave of collaborations between banks and FinTechs, both in wholesale and retail banking.

Regulation tops the list of concerns, and who’s to blame?

Our discussion panel confirmed the survey findings that 57% of bankers see regulation as their biggest concern, with meeting growing customer expectations in second place at 53%, downward pressure on pricing and margins third (36%) and the pace of technological development (33%) coming in behind. Our research also found that managing different standards across multiple markets (i.e. regulatory compliance) was seen as a key challenge by over half (53%) of respondents.

Participants in our sundowner noted many new developments in regulation did not leave a lot of room for banks to manoeuvre, and that the current direction of travel in regulation was hard to predict. Given these factors, many banks are now directing increasing amounts of resource to compliance departments. Some participants argued that this was inhibiting banks’ capacity to innovate – as was the wide range of different KYC and AML regimes required across Europe. Participants identified KYC and AML – and regulation more broadly – as an area in which banks could collaborate to mutual benefit, both with peers and between incumbent and challenger banks.

There was heated debate about the track record of banks with regard to regulation, with some views expressed that previous “bad behaviour” by banks had brought the present level of regulatory scrutiny on the industry. Some believe that banks should be pressing for more supra-national, and fewer national-level regulations within the EU, while others argue that the focus of bank lobbying should lie in ensuring a “level playing field” between established banks on the one hand, and insurgent FinTechs on the other.

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