Fintech start-ups put German banks under pressure
Frankfurt am Main, Germany – May 10, 2016 – Traditional banks in Germany are struggling with a conflict: they understand the need to offer real-time, multi-channel experience and personalised services to compete with digital entrants. Yet they are still not willing to do what it takes to deliver this. . This is the result of a White Paper which Temenos and the International Data Corporation (IDC) jointly published today.
The White Paper reveals that nearly two thirds of banks surveyed feel threatened by new banks (63 percent) and new types of competition such as Fintech start-ups (60 percent). It shows that Germany is not immune to the customer experience revolution which has already taken place in other industries. Germany is not immune to the threat triggered by Fintechs and start-up banks that provide state-of-the-art banking experience.
Lawrence Freeborn, Senior Research Analyst at IDC Financial Insights, says: "Our White Paper tackles the fundamental digital transformation traditional banks in Germany must undergo. Existing players which do not undergo this process are making it easy for new players with service-based computing and a digital business model to attract the most valuable customer segments and undercut the market. Germany is no exception to the rules: customer retention and revenue generation must be a higher priority than cost savings if a bank is to survive".
The survey reveals that 70 percent of the banks questioned cite cost savings as their main strategy for improving profitability. This strategy is followed by customer acquisition which was named by nearly 60 percent of those surveyed as a way to improve profitability. Clearly the two biggest priorities of German banks are in conflict with each other. Shared IT centers, for example, deliver cost-efficiency, but at the expense of flexibility and innovation, which could attract modern consumers. The most cited challenges for digital transformation and innovation were: poor return on investment (43 percent) and perceived high risk (45 percent). , Inflexibility and lack of control over outsourced IT infrastructure were also named as impediments to change by more than one third of interviewed banks (36 percent).
"Banks must reset their priorities. They must shift their focus towards investments in those areas which will allow them to compete for the consumers of tomorrow. Only by end-to-end digital transformation a bank can position itself to evolve its customer service at the required pace",
says Dr. Noah Krähenmann, Regional Sales Director Europe at Temenos.
Digital transformation seems to remain a challenge for German banks. More than half of banks interviewed (58 percent) stated that managing legacy IT is seen as a threat that will have a big impact on business. Dr. Noah Krähenmann, Regional Sales Director Europe at Temenos, explains: "Offering a state-of-the-art customer service with a legacy core system is difficult. Ultimately, a digital bank is underpinned by modern back and middle office systems."
The White Paper is based on a telephone survey of 60 banks in Germany. The focus of the interviews was on German banks' strategies for improving profitability, the perceived challenges of digital transformation and competitive as well as operational threats.