In the embedded finance industry, e-commerce, technology, and payment businesses are competing with banks.
In order to be at the center of the financial universe, banks need to take advantage of disruptive technologies and establish their own digital ecosystems or actively participate in them, according to a global “Economist Impact” study that was commissioned by banking software company Temenos and polled 300 institutions worldwide.
According to the recently released Temenos report, “Byte-sized banking: Can banks create a true ecosystem with embedded finance?”, banks are being forced to evaluate their current position and make adjustments as e-commerce, technology, and payment companies compete with them more and more for embedded finance solutions.
Fintechs are typically better positioned and more nimble to deliver personalized products and services, therefore the financial industry is likewise being greatly impacted by consumer expectations for more of them.
According to Temenos, roughly 79% of poll participants concur that banking would become “embedded” in the value chains of businesses and consumers’ lives. In the upcoming years, according to one in five banks surveyed, their business model will change to allow for embedded finance in their own products and services and to provide banking-as-a-service (BaaS) to fintechs and brands. Almost twice as many prefer to continue operating as a genuine digital ecosystem and interacting with customers.
Sixty-three percent of respondents said that new technology would have a greater impact on banks in the next five years than client demands and regulatory changes.
“If you do not have modern technology, younger generations will not bank with you, regardless of how long you have been in business,” stated a bank CEO cited in the story. Seventy-one percent of respondents believe that the key to differentiating winners from losers will be the ability to unlock value from AI, with 75 percent of respondents expecting generative AI in particular to drive banking.
The focus must be on the customer
“Banks are realizing that they need to become true digital ecosystems in order to preserve their direct connection with the consumer,” stated Jonathan Birdwell, global head of policy and insights at Economist Impact. Future bank offerings to its clients will likely include more integrated ESG and sustainable banking offerings as a result of customer centricity.
It is evident that gaining access to knowledge about developing technologies requires working with fintechs or other technology suppliers. In light of this, a study of banking executives revealed that they frequently anticipated changes in the industry’s relationships during the following three years. Up to 44% of respondents think banks would buy out the bulk of fintech companies, and 32% think challenger banks will consolidate their market share over the next one to three years.
“Banks need to tap expertise in new technologies like cloud and AI as well as collaborate with fintechs and technology companies to offer embedded finance as well as to build digital ecosystems,” said Temenos Chief Strategy Officer Kanika Hope.
“With 51% of respondents saying that banks will no longer own any data centers due to the transition to public cloud in the next five years, the case for the public cloud is getting more and more compelling. In addition to business agility, efficiency, and security, environmental concerns are another reason why banks are speeding up their cloud migration.
