A report published by Temenos, a global banking software company that serves more than 3,000 banks worldwide, showed that 65% of executives believe that the traditional branch-based model will become obsolete within five years and that banks will be mainly large digital ecosystems. Four years ago, this percentage was 35%.
Produced by The Economist Intelligence Unit, the survey entitled “Breaking down barriers: can banks move from city centers to digital ecosystems?” consulted more than 300 global banking executives, most of them in senior management positions. The survey included respondents from retail, corporate, and private banks in Europe (25%), North America (24%), Asia-Pacific (18%), Latin America (17%), and Africa and the Middle East (16%).
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The vast majority believe that this is a one-way street: banks are concentrating efforts and investments on cybersecurity, artificial intelligence, and cloud computing to accelerate digital projects.
Also, 47% of respondents expect the banks they work for to become digital ecosystems in the next two years, through partnerships with other companies. Some 38% of banks are innovating by investing in or acquiring fintechs, while 24% report participating in sandboxes to test new propositions.
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Kanika Hope, chief strategy officer at Temenos, says open banking and increased competition with the entry of fintechs and digital banks are forcing banks to rethink their traditional business models. “The report shows that banks now understand that technology will be an enabler for these new business models and is key to staying competitive in the market.”
New priorities: customer experience and marketing
This year’s survey points to a dramatic shift in banks’ priorities. According to the report, five years ago, banks were focused on reducing costs and maintaining return on equity for shareholders. Now, in the face of increasingly fierce competition, the focus is on improving customer experience and digital marketing – 81% of executives believe that banks need to offer a differentiated customer experience, rather than products.
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But there are differences when looking at each region. While in Europe and North America improving customer experience and engagement is the biggest concern for banks, in regions where digitization and digital inclusion are still lower, other items come first.
This is the case in Latin America. The majority of respondents in the region indicated that promoting customer migration to the digital environment is a priority (42%). Next were improving product agility (38%), digital marketing (26%), modernizing processing systems (22%), and improving customer experience and engagement (20%).