How FinTech Alternatives Pose Threat To Banks

Retail banks are increasingly falling behind by tech-savvy competitors – such as the FinTech alternatives entering the market — which could cause serious threats to the future of traditional banks, suggests a new report by Oracle’s financial services unit.

The report, titled “Banking is changing … with or without the banks,” surveyed more than 100 executives at major retail banking institutions globally last September, which revealed the importance of investing in digital strategies. In fact, 94 percent of respondents said that having a digital omnichannel presence is important for customer retention, but only 61 percent noted that digitization is a high priority.

That gap could be part of the problem.

“Retail banks are institutions. Old. Established. Global… And in danger of becoming extinct. Today’s competitive landscape in banking is far removed from what one would have seen just ten years ago,” the report said, which noted the rising influence of the FinTech space.

“No longer do retail banks simply vie for customers against other retail banks. Instead, we are witnessing an influx of new, tech-savvy, digital competitors – FinTechs – all eager for a piece of this lucrative financial pie,” the report said.

In the same survey, a third of executives, or 37 percent, admit that future success of their business is “entirely dependent” on digital customer engagements. Despite the executives’ recognition that technology initiatives are urgently needed, almost all of them, or 88 percent, told Oracle they see challenges in moving toward digitization.

The key challenge lies in legacy systems, with lack of suitable technology hindering efforts to become truly digitized, 75 percent of the respondents said.

“Failing to meet customers’ expectations is dangerous in any industry; it could be lethal in an environment where the competitive landscape is becoming ever-more congested,” according to the report.

Oracle says that executives acknowledge rivals without the same types of legacy tech issues – financial tech upstarts with social media skills and even telecoms – but they are stuck in a “defensive mindset” that is marked not by eagerness to boost revenue streams, but by the worry that they will lose customers. At the moment that may be the key impetus to digitization, with 83 percent claiming customer loss as a prime motivator.

Key services that are among the most important to adopt, as noted by the respondents in the report, include mobile payments and real time data syncs, spend analytics and social media. Certainly there’s room for improvement here, as only one in three retail institutions offer real-time analytics.

Expectations seem dour as there’s a large gap between what customers will want and the market will be able to deliver, the study found. In North America, 58 percent of banks believe that customers will want digital synchronization, while only 33 percent believe the market will truly be able to deliver those services.

“This obviously isn’t going to be good enough to stave off the rise of FinTechs. The new entrants to the market will parade digitized customer engagement as a badge of honor, and when they do – just as the banks themselves are predicting – customers will follow,” the report concluded.