Retaining customer loyalty overtakes regulation as number one challenge for banks
According to a Temenos and Deloitte report published today, 29% of senior banking executives see their biggest challenge as retaining the loyalty of more demanding and better informed customers
Geneva – 26 June 2013 – Temenos (SIX: TEMN), the market leading provider of mission critical solutions to the financial services industry, today announces the results of its annual survey of global financial services challenges, investment priorities and trends.
At the Temenos Community Forum (TCF) - an annual conference bringing together Temenos customers, partners, senior management, industry analysts, investors and media - Temenos takes the opportunity to carry out a comprehensive survey of its customer base. The TCF2013 survey, the 6th in the series, was completed by 205 senior managers from a broad range of financial institutions from around the world, providing a rich and unique data set for analysis and from which to draw interesting insights about the industry.
The report on the TCF2013 survey results, produced in collaboration with Deloitte, shows the industry at an inflexion point, still grappling with the barrage of post-crisis regulations but with priorities shifting to reflect the significant and growing challenge posed by a more demanding, less loyal customer base and by more intense competition – with, for the first time, respondents as concerned about the competitive threat from outside as from within the industry.
The industry faces changing challenges. Last year’s survey showed that the industry saw its biggest challenge as coping with new regulations. This year, financial institutions see their biggest challenge as retaining the loyalty of their more demanding, better informed and less loyal customers, cited by 29% of respondents. Financial institutions also see a much bigger threat from competition, cited by 23% of respondents compared to 17% in 2012.
Product innovation, IT modernisation and investing in channels top the industry’s priority list. Reflecting the change in their environment, financial firms are focusing primarily on the areas that can help them compete more effectively and retain customer loyalty. Interestingly, it is not just online channels that are moving up the corporate agenda, but also branches which the industry increasingly sees as a key plank of a multi-channel strategy. In 2013, 31% of respondents named branch and online channels as their top priorities, compared to 20% in 2012.
Financial services firms see, for the first time, as much of a competitive threat from outside as from within the industry. While respondents cited large incumbent banks as their single biggest competitive threat, almost half named competitors from outside of the industry such as supermarkets and peer-to-peer intermediaries as their biggest threat. Corporate and Private Wealth Managers are most concerned about the possibility of their customers going directly to the capital markets for their financing needs, cited as the biggest threat by 32% and 25% of respondents from these sectors, respectively. The fastest-growing threat, however, mentioned by 18% of respondents versus 11% in 2012, is perceived to come from payment providers, such as PayPal, who banks increasingly acknowledge could take over the customer interaction.
IT budgets are set to rise faster than in any of the previous five years. This year’s survey has the highest ever proportion of banks, 65%, predicting rising IT budgets over the next 12 months. Consistent with the corporate priorities, IT spending is rising to meet competitive and customer pressures, with spending on channels the fastest-growing area. Core banking renewal and business intelligence are the second and third highest priorities.
The industry is becoming more enthusiastic about cloud computing. We have recorded a significant change in the industry’s attitudes to cloud, with now more than 80% of firms running at least one application in the cloud – up from 57% in 2009. While there are still perceived to be strong barriers to putting core processing in the cloud, these too seem to be diminishing as providers deal with regulators’ misgivings and overcome concerns about data privacy.
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Ben Robinson, Temenos Director of Strategy and Marketing, said:
The confluence of disruptive technology change, more intense competition, less loyal customers and new regulation is creating a radically different operating environment for financial firms. What is interesting about the findings of our survey is the extent to which industry players now seem to be reacting. The industry has changed its corporate priorities to focus on those areas such channels, product innovation and IT modernisation that can help it react more quickly to market changes, build competitive differentiation and improve the customer experience. The industry also appears prepared to do things differently, as evidenced for example by a fast-growing adoption of cloud-based applications. What is clear is that those financial institutions that react quickest will be best placed to succeed over the coming years.
Tim Walker, Deloitte’s Global Core System Transformation Proposition lead, said:
Banks around the world have spent much time over the last few years dealing with the effects of the economic crisis. Many put growth and expansion plans on hold during this time, preferring to conserve their share of the market until more favourable business conditions emerged. The survey confirms our view that, for many banks, the priority now is to make investments both in product and customer service innovations and in the IT that is required to deliver these. Those banks that are able to make these investments will be well positioned to win the race for more customers and more business in the months and years ahead.