Banks complacent in face of fintech challenge
- Tim Evershed
- On July 4, 2018
TRADITIONAL banks are being complacent in the face of the rising competition from fintech firms, according to an EU regulator.
The European Banking Authority (EBA) has published two reports as part of its new Fintech Roadmap Initiative, looking at the impact on business models as well as prudential risks and opportunities.
It noted that the pace of technological change in the finance sector is working with significant socio-economic trends to change consumer behaviour.
“These are important forces for credit institutions to rethink the ways they offer banking services and adjust their business models and strategies, combined with the motivation to seek more diversity in protecting and increasing their revenue sources and reducing costs in today’s low interest rate environment,” said the EBA.
Read more: A new £50m fintech venture fund has launched
“The potential disruption in the provision of financial services from the application of emerging technologies and the entrance of new players into the market appears to be forcing institutions to rethink their business models, as a potentially passive reaction may result in institutions’ current duties being executed and taken over by other, possibly new, players.”
The EBA found that customer expectations and behaviour, profitability concerns, increased competition and the regulatory framework are all driving changes in financial services firms’ business models.
Although incumbent institutions are at an advanced stage in launching online and mobile banking solutions, the EBA warned that challenges remain.
“Risks to business model sustainability mostly stem from incumbent institutions’ ability and capacity to adapt and their speed of doing so,” said the EBA.
“This is particularly challenging for some large complex incumbents that have a very formal and slow governance structure, further restricted by legacy ICT systems or legacy non-performing assets.”
According to the reports, incumbent institutions are keen to collaborate and establish relationships with other fintech firms.
However, the EBA said that incumbent institutions take a strategic view of investments and tend to make them though venture capital funds rather than directly.
Read more: Brits embrace fintech amid digital shift
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