Life after COVID-19 will be a ‘digital-most’ economy. How do banks better serve their customers and acquire new customers in this environment? Where are the next opportunities? What role will regulation play? And is the debate over ‘legacy technologies’ now at an end? On 17 June 2020 Dave Birch led discussions at an exclusive preview of Banking Circle’s new whitepaper “Ready for the Rebuild’ for select guests from key Nordic banks including Handelsbanken, SpareBank 1 SR-Bank, Sydbank, SEB, Nycredit, Spar Nord Bank and Länsforsakringarm.

To inform the research, Banking Circle commissioned MagnaCarta Communications to interview ten senior executives from banks, PSPs, and FinTechs about where banking is headed after COVID. These interviews were complemented with a survey of industry professionals from the Nordic region, France, Germany and Benelux to provide quantitative findings. Panellists featured were Per Christian Goller of Aprila Bank, and Georg Ludvikkson of Meniga – both interviewed for the report.

We discussed the key findings of the report during a virtual launch event with senior representatives from key Nordic banks.

Concerned about regulation outweighing customer expectations?

Our research shows that 57% of respondents viewed 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. Confirming these concerns, a separate question in the survey found that managing different standards across multiple markets (i.e. regulatory compliance) was seen as a key challenge by 53% of respondents.

The Nordic banks attending our launch event cast some doubt on these responses, noting that if more banks are not concerned about new regulation, they’re not aware of what’s coming next.

However, some challenger bank participants pointed out that they had automated some of their regulatory processes, so regulation was less of a concern for them compared to incumbent banks. For bigger banks that had not invested in RegTech, it would indeed be a concern – though not as big a concern as the poor service big banks had traditionally given SMEs. In that regard, some participants expressed surprise that “meeting developing customer requirements” was not seen as a bigger issue.

COVID-19. Recovery will be swift

Only a quarter (26%) of respondents in our research said that the COVID-19 crisis would significantly affect their planning and 41% of banks, PSPs and FinTechs said they were ready for a swift recovery from COVID-19. Nearly a third (32%) said that the crisis had encouraged them to make significant changes.

Participants in our virtual event discussed the extent to which COVID has been a stimulus to change, pointing out that one positive outcome from the crisis had been that remote working and engagement through the Cloud had been proven as a way of getting things done. The crisis also revealed the strength of banks’ disaster recovery processes. Seen from the perspective of their FinTech partners, many banks have responded well, and have accelerated their collaborations with FinTech partners, continuing with a renewed focus on creating new services for their customers.

Banks no longer see legacy tech as an issue – or do they?

92% of respondents to our survey said they were confident of their ability to meet change, with nearly half (49%) citing their increased investment in new technologies as the basis for this confidence. Just 3% of respondents said that legacy technologies continue to be an issue and 5% acknowledging they need to be more responsive to changing customer needs.

Our virtual event guests cast doubt on some banks’ claims to be more agile and technologically competent than previously. Although banks in the Nordic region were seen to be up to speed with modern technologies and properly “agile”, many in the group felt that other regions of Europe and North America were not as well-versed in new technologies. As one example, the cost of customer acquisition for non-digital banks is currently around 10 times that of a digital bank – and customer acquisition is likely to be more challenging in the years ahead.

Although many banks have begun to hire more software developers, in itself this does not make a bank more technologically agile. Some FinTechs taking part said that major banks now recognise the need to be more agile, and that decisions were now beginning to be made by senior executives without the support of other departments and extensive market research – meaning that these decisions could be made more quickly and effectively.

Western Europe’s preference is for homegrown

The vast majority of respondents (84%) of our research from – mainly key Western European countries – said that they saw growth as coming from home markets in Western Europe, with 54% saying South and South-Eastern Europe would also be a focus area for growth. Surprisingly, these figures outstripped respondents’ intentions to look to South-East Asia (32%), India (31%) and North America (25%) for future growth.

Our Nordic bank participants agreed with these findings, noting that the challenge of digital transformation in financial services provided plenty of growth opportunities in markets close to home. For instance, one participant cited the statistic that 70% of SMEs in their focus markets had never engaged in a lending arrangement with their bank; another participant pointed out that major Nordic banks had deliberately scaled down their operations in the Far East and USA to focus harder on opportunities in their home markets. At the same time, digital banking is booming in Europe, with usage up around 30-40% since the start of COVID. Although some might question certain consumer segments’ appetite for change, there was no doubt that change – digital transformation of banking – is now a reality, with Germany’s long-standing love affair with cash appearing to be coming to an end as a result of COVID. Participants expect growth in home markets to express itself in terms of digitisation of payments, rewards and savings functions – with SME lending another area earmarked for rapid expansion.

The Banking Circle whitepaper, “Ready for the re-build? Re-thinking value with digital infrastructure”, will be launched on 2 July 2020. Pre-register to receive your copy here.