October 6, 2021

Can retail banks withstand the advance of fintech companies?

The need for retail banks to digitally transform is nothing new. What’s new is how rapidly digitally-driven market entrants are grabbing market share from traditional players. Fintechs represent a clear and present threat to the survival of these traditional retail banks because they are more innovative and better at meeting the ever-changing demands of customers.

The 3 forces driving change

It’s a perfect storm. Three unstoppable forces are converging on retail banking to drive the sector’s digital revolution.

Customer expectations and behaviours

It’s not just the younger, more tech-savvy generations who expect the same level of simplicity and intuitive interaction from their banking as that technology gives them in most other areas of their lives. We all do, as our lifestyles become more mobile we want to be able to use banking service wherever and whenever we want. We also want more personalisation–relevant offers, tailored recommendations, timely advice.

59% of customers want tools to help them monitor their monthly budget, with real time adjustments based on their spending[1]

27% of consumers say they have replaced or considered replacing their traditional banking provider to an online or mobile-only banking provider [2]

2. Fintech’s forward march

Digital-first, sometimes digital-only, new market entrants are hungry and eyeing the rich pickings they see across retail banking. First to adopt new technologies–from AI to IoT to Blockchain–they thrive on innovation. More agile. More responsive. Better at meeting customer expectations speedily and faster to market, fintechs are fast stealing market share–and with a 25% predicated annual growth rate in the global fintech market between 2018 and 2022[3]–they show no signs of easing up.

3. Sustainability’s sharp end

Now increasingly important as a key differentiator, the pressure to increase sustainability across retail banking is being driven from all angles–investors, employees, customers, regulators, and governments. From operating more sustainably at local, national and global levels, to providing more sustainable products and services such as green loans, retail banking’s greener future is digital.

40,000 active users have already turned to Germany’s new Tomorrow bank that offers not just an ethical current account, but a swathe of sustainability-focused add-ons[4]

It’s no longer a question of retail banks having to improve their digital capabilities. It’s now imperative that they must dramatically accelerate their digital transformation in order to survive.

The digital transformation set back

Why are traditional banks now considered so inefficient and inflexible in both meeting the demands of today and anticipating the trends of tomorrow? What’s stopping them from delivering against customer expectations for instant convenience, relevant personalisation, seamless experiences and innovative products and services?

When you strip it all down, the answer is simple: inflexible, legacy IT systems.

The retail banking sector is currently reliant on IT infrastructure that is no longer fit for purpose. It’s preventing them from making digital advancements that companies require to be competitive. Here’s why:

Collaboration constraints

Traditional IT infrastructures’ siloed nature limits communication, especially across teams that are dispersed. This severely limits retail banks’ capacity to innovate and go to market quickly – preventing more agile entrants from establishing themselves.

43% of global banking executives attribute the infrequent release of new products to legacy IT systems[5]

Data blind spots

By locking data in silos, legacy systems prevent the gathering of real time customer data. Without this visibility, retail banks struggle to understand customer needs, respond quickly and deliver personalised services.

Only 6% of banks believe they’re able to provide highly personalized outreach[6]

Road blocks to integration

The integration and performance of new technologies like Ai are hampered by the existence of legacy IT architectures. This negatively impacts the company’s capacity to establish new revenue streams, produce new goods and communicate with customers in more seamless and convenient ways.

57% of global banking executives stated that legacy banking systems had a significant impact on integration of emerging technologies[7]

Why interconnection is the route to digital acceleration

Retail banks know they need to accelerate their digital transformation. Many understand that their IT architecture is inflexible and limiting. But too few are aware that interconnection provides their clear route forward.

Interconnection enables the transition to a more dynamic, flexible and distributed IT architecture. It integrates people, clouds and data, facilitating secure delivery of high-quality digital experiences to customers around the world. Interconnection lets retail banks achieve the resilience and digital transformation they need to succeed. By using software-defined networking and interconnection services via interconnection hubs–such as those provided by Equinix–retail banks can overcome many of their current IT challenges and embrace the digital future.

Equinix provides the connections between data centres and partners with China Telecom (Europe) to provide connectivity from these data centres to business locations across China and the APAC region. Interconnection enables data and analytics to be located closer to customers. That means customer insights can be gathered in real time, improving understanding and speeding up responsiveness.

With interconnection, information is exchanged in real time via interconnection hubs. This real time data exchange improves collaboration across the business and with partners, driving faster product and service innovation. Interconnection also gives access to a cloud/IT ecosystem, enabling retail banks to scale and deploy new digital technologies with the speed they need to compete with digital market entrants.

With IT resources located closer to customers, customers’ digital experiences become seamless, swift and satisfying–wherever they are.

38% is the forecast rate of growth of interconnection bandwidth for banking and insurance enterprises between 2019 and 2023[8]

Can retail banks withstand the advance of fintech companies? Certainly. By taking advantage of the power of interconnection, retail banks can accelerate their digital transformation, protect and even grow market share and ensure they become the future bank customers want.

To find out more about interconnection’s role in enabling retail banks to accelerate their digital transformation, download our e-books jointly produced by Equinix and China Telecom (Europe). The first of these two e-books reviews the case for digital change and the imperative role interconnection has. The second e-book focuses more on the specific applications in retail banking, these e-books serve as a guide to transforming your IT for banking’s digital revolution.