New Competitive Threats Pressure Banks in North America to Respond to Changing Customer Demands, Reveals Study by the Economist Intelligence Unit Released by Temenos

North American bankers sense danger more than most from new entrants to their market, according to a global retail banking survey released by Temenos (SIX: TEMN), the banking software company. The Economist Intelligence Unit (EIU) report, A Whole New World: How technology is driving the evolution of intelligent banking in North America, conducted on behalf of Temenos, reveals changing customer behavior and demands as one of the biggest trends that will impact retail banking in North America.

The study also found that banking clients increasingly seek speed and convenience, and with Google the latest tech giant to announce plans for “smart” checking accounts linked to the Google Pay app, new technologies are understandably seen as high impact trends on the sector for both the short (40% for 2020) and medium terms (43% for 2025).

In addition, the study shows challenger banks are increasingly making their presence felt in North America, be they domestic start-ups such as Chime or Simple (now part of BBVA), or overseas brands such as Monzo and Revolut expanding their footprint.

However, the study reveals that payment players, such as PayPal, Apple Pay, Visa, and Square, are seen as a far greater immediate competitive challenge (cited by 41% of respondents for 2020), than the neo-banks (16% for 2020). Banks are also conscious of the upcoming threat posed by big tech firms teaming up with fintechs to create hybrids (29% for 2025), where the app provider has no need for a banking license and is not required to comply with regulatory capital ratios.

Thomas E. Hogan, President – North America, Temenos, said: “Banks and credit unions are under enormous pressure to transform and disrupt. This is not new news and has been in flight for the past several years. The key insight today is to swiftly shift from the legacy focus on survival and efficiency to a focus on growth and leadership. There is an immediate opportunity to leverage technology for growth in clients, assets, lending, loyalty, and human capital. It is equally important that financial institutions pursue these outcomes in parallel with the enablement of open banking.”

Other Key Findings

▪          North American banks are focusing their actions on becoming digital eco-systems, offering bank-related and non-financial services from third-parties (44%), with only few attempting to build niche propositions (16%) or opting to become a third-party aggregator (12%)

▪          The primary need for North American banks is to be far more agile (38% for 2020) and able to bring new features and products to market, but that is complicated when regulatory requirements have not been set

▪          With a plurality of North American banks planning an open banking strategy (37% for 2025), the need for greater regulatory clarity will only become more pressing

▪          Although tech firms may be more than capable of launching new services that fully replicate the banking experience, they appear to be holding back. North American respondents are the least likely to agree that sandbox collaboration between banks and fintechs will be mainstream by 2025 (48% vs. 56% globally)