Capgemini: Tech giants biggest threat to banking sector (2024)

Investment priorities at traditional banks are moving more and more towards IT, as banks seek to meet customers’ high expectations and beat out competitors, research by Capgemini and Temenos shows. Particularly traditional universal and retail banking offerings are under threat from tech giants, while private and microfinance remain in the hands of traditional players.

The banking industry is facing competition from not onlynew FinTech players, whose offerings are expected to become an issue over the coming years, but also from large established technology industry players. In addition, many traditional banks continue to face backoffice legacy issues, hampering their agility, whileboard room participationremains low.

A report by Temenos, a banking software vendor, in association withCapgemini, titled ‘Shifting Sands: Banking in the Digital Era’, explores the corporate and IT priorities of banks, their challenges, and their view of the competitive environment. This year’s survey involved 201 senior banking staff, working across the globe, providing a broad view of banking sentiment around banking IT trends and challenges.

This year has seen major changes in the strategic priorities for corporate banking investment. In 2014 the top priority was providing more channels through which customers could leverage banking services, this year however, banks are starting to realise that for channels to provide the satisfaction expected by customers, the backend IT system needs to be up to scratch. As a result, modernisation of the backend has jumped from the number four spot last year to the number one spot this year.

Innovation remains a key priority for banks, as they are in particular looking to introduce products and services that can help develop a more intimate customer relationship in the digital world. These include rewards and loyalty (cited by 10%), personal financial management and other tools to help customers manage their finances better (cited by 8%) and investing in real-time, location-based offers (cited by 7%). Banks are less concerned than last year about regulatory issues, the priority falls from number three to number five. Talent acquisition jumps one spot to number four.

The report also identifies the main competitive threats as seen by the respondents, as well as the banking segment in which those players pose the largest threat. Whereas there has been much said about the possible threat of FinTech players on the banking industry, the biggest threats highlighted are large incumbents and technology players (particularly Amazon, Apple and Google). These large tech players have considerable dry-powered, massive innovation capabilities and powerful brand presences.

In terms of segmented risk, tech players are the largest threat to universal banking at 32%, followed by FinTech players at 23% and incumbents at 21%. In the retail banking segment tech players also perform strongly at 28%, followed by existing incumbents at 20%, FinTech comes in third place at 15%. Private banking, according to the report, remains an area that is the least threatened by FinTech or tech players, at 6% and 8% respectively. Incumbents (28%) and overseas entrants (24%) are the biggest risk factors here. Micro-finance is also mainly in the hands of incumbents, with tech and FinTech players not seen as able to service that domain.

Following the increased priority on improving IT systems, IT budgets have again increased at the majority of banks in 2015. The difference between those expecting to increase investment and those expecting to decrease is at a record high since 2008 at 58%, up from 46% recorded in 2008 and 24% in 2009.

The report highlights that there is regional variation. The US banks are the least bullish, as only 56% expect budgets to be higher (vs. 70% in 2014) and 44% expect budgets to be unchanged (vs. 30% overall). Asian banks are the most keen to invest further in IT, 82% expect higher budgets and only 12% expect budgets to be lower. European players are also expecting to invest more this year, 58% expect budgets to be higher compared with 44% a year ago, likely a result of improvements to the macroeconomic situation on the continent.

In terms of the areas that will see the largest parts of the IT budgets’ priority, core banking remains the key priority at 23% (down from 25% last year), followed by channels at 21% (down from 23%). Data analytics has also lost ground since last year, at 14% compared to 16% then. Improving services has cut into many of the other priorities, increasing from 0% last year to 6% this year. Payments have also seen a slight increase since last year, from 6% to 7%.