While regulations continue to be top of mind for financial institutions, banks have another main concern: the innovations and progress being made by fintechs, according to a survey released by EY.
Financial institutions need to be more aware of the effect fintechs—which provide “simpler, more convenient, more transparent” services, are having on the industry, EY stated in its Global Banking Outlook survey for 2018. In its Global Banking Outlook 2018 survey, EY assessed 221 financial institutions across 29 markets. According to the results, banks argue that innovation, not just regulation, is behind the wheel of progress.
EY said in the survey: "Banks face increased competition from new market entrants, including digital banks and FinTechs. Leading banks are forced to respond, investing in technology to prevent customer leakage and preserve their value chain".
Regulatory pressures, particularly following the global financial crisis, imposed new stressors on global banks. But today, EY found, financial institutions are looking up. Eighty-five percent of executives surveyed said they predict revenue to increase in the next three years; 12 percent said that growth will be in the double-digits in the next year, hitting 31 percent by 2021.
Further, while revenues are expected to increase, banking professionals are also gearing up for costs to do the same. But the key to this trend is the prediction that banks will reallocate spending from regulatory-related costs to other initiatives.
Banks, of course, cannot ignore the FinTech threat. EY pointed to previous research from its FinTech Adoption Index, released last year, which found that customers are attracted to FinTech offerings thanks to their “simpler, more convenient, more transparent and more readily personalized” services.
“The bottom line,” EY said, “is that banks need to realize that competitive threats are continuing to evolve and prepare to battle these disruptors in the marketplace.”
Analysts noted that the shifting source of market pressures away from regulation and toward FinTech rivals has created a climate in which innovation reigns, forcing banks to design new solutions to retain customers and prevent bank switching.
Amid the competitive pressures of FinTech incumbents is another force driving how banks invest in, adopt and implement innovative tools: cybersecurity.
This year, cybersecurity will stand with digital transformation as the highest priorities for FIs around the world, EY’s report found. Nearly 90 percent of survey respondents said the enhancement of data and cybersecurity is their top priority, after coming in at sixth place in 2017.
Anti-money laundering, protection against financial crime and managing reputational and conduct risks are all behind this revamped focus on cybersecurity. But the focus on data protection doesn’t exist in a vacuum: according to FY, banks are having to manage the old pressures with the new — that is, they must navigate evolving cybersecurity regulations and new cybersecurity-related FinTech to become successful with this strategy.
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