We came across a summary of a recent survey conducted among UK financial institutions around the subject of disruptive influences as we move into 2019 and beyond. The survey was conducted by Fraedom, a fintech specializing in automated expense management and reporting systems for banks and businesses, particularly in the corporate card and travel space. Findings include that more than three-quarters (80%) of bankers believe challenger banks are an increased threat to their business, while almost one-third (30%) believe they will be the single most disruptive threat in 2019. The Fraedom survey found that in response the challenger bank threat, bankers expect their organizations to invest heavily in updating legacy systems (44%) and new technology (26%) in 2019.
For those not especially familiar with the ‘challenger bank’ concept, they are smaller, tech-driven retail banks spurred on by the UK Competition and Markets Authority (CMA) to stimulate innovation in an otherwise traditional banking system model dominated by large institutions. “With challenger banks setting themselves apart by offering innovative technology platforms, commercial banks are now realizing they must invest in key areas in order to counter this threat. This was also echoed by our survey which found other disruptive influences in 2019 to be digitalization (36%) and consumerisation of technology (36%)” said Kyle Ferguson, CEO, Fraedom.
This comes as almost half (46%) of respondents perceive legacy systems to be the biggest barriers to the growth of commercial banks, while 32% cite it’s the pressure to save money.
With investing in new technology high on the agenda for commercial banks, the survey found that over half (53%) of respondents believe AI and Machine Learning will be the technologies to have the biggest impact on commercial banking in 2019. This is interesting as well since Mercator recently released a report titled Fintech in Corporate Banking: Digitize or Miss the Boat, in which we essentially make similar points (as evidenced by the title), including the general financial services industry consensus that bank preparation for serving the rapidly transitional digital world has to date been less than required. Although the challenger banks are initially targeting consumer use cases and clientele, the principle applies to corporate banking businesses as well.
“It is clear to see that challenger banks are a disruptive force within the sector. Through the use of innovative technology, these banks have plugged a gap left by established retail banks, and are acting as a stark warning to banks within the commercial space which remains open to similar disruption,” added Ferguson. “If commercial banks are to compete, they must become more agile and adopt new technology platforms suited to changing needs of businesses, or risk being left behind.”
We would tend to agree.