While banks know they must act and pursue digital solutions across their business units to improve customer service and reduce costs, few have followed through, according to a new survey of European banks by management and technology consultancy BearingPoint and the Bavarian Finance Centre (BFZ).

The findings form part of a wider survey on the adaptation and use of digital technology across 48 European banks.

Other key findings from the survey include:

– Only 17% of banks say they have achieved a high degree of digitalisation for their retail business, yet 91% say retail banking is the most important area to leverage digital technology;
– Banks have a passive attitude to digital technology and customer services, with 61% developing digital services in response to customers rather than leading their development; and
– 54% of banks surveyed say they want to cooperate with new entrants in banking, such as fintechs, but 46% plan to compete with them.

The study also examines the impact of new market entrants, particularly fintechs, on the traditional banking market. These entrants are utilising innovative digital and mobile technology to attract customers without the cost of running hundreds of high-street branches, faced by traditional banks. The competitive threat felt by high street banks from fintechs is reflected by the fact that 36% of banking executives surveyed expect fintech companies to be their biggest competitor by 2020.

The survey also indicates that banks are aware of the value of investment in digital technologies and are spending significantly on digitising their business. For example, Germany’s Deutsche Bank announced in 2015 that it expects to spend up to €1 billion on digital technology between now and 2020. However while almost all banks surveyed (95%) recognise the competitive “first mover advantage” to be gained by being the first to introduce innovative digital technology, the majority of banks describe themselves as “second movers”.

Responding to the results of the survey, Martin McKenna, Partner responsible for Financial Services at BearingPoint Ireland said, “As we have seen in Ireland in recent weeks, Irish banks are following the global trend towards increasing automation and digitalisation of services. Having an effective and ready-to-implement digital strategy which anticipates and quickly adopts to emerging trends is now critical for banks to remain competitive and retain customers.”

While the need for a digital strategy is increasingly top of retail banks’ agenda. As Bank of Ireland’s recent restrictions to customer lodgements has shown there is a fine balance between encouraging consumers towards digitalisation and ensuring that customers do not feel alienated by drastic changes in how their banks provide services”.

According to Mr McKenna there are a number of initiatives which could help foster the transition to digitalisation. These could include:

– Incentivising consumers to move to e-statements, paperless billing, contactless card and debit card transactions;
– Continuing to roll out and develop ‘Money manager’ apps to help customers better manage their spending and savings across their multiple banking accounts;
– Reduced or no charges for electronic payments.

Mr McKenna commented, “In general, most banks have struggled to produce technology that’s quicker and smarter than that developed by fintech players who are revolutionising payments services. Our survey reveals a growing realisation by banks that they can’t out-innovative fintechs and that joint collaboration is the way forward. This is already happening across Europe with Germany’s Deutsche Bank already collaborating with fintechs or MasterCard UK’s link up with Apple Pay to allow customer pay for public transport. It’s likely that this trend will prevail here also with increasing link-ups possible between Irish banks and leading tech players, such as Apple or Google”, added Mr McKenna.

To see the full survey results and analysis, visit: http://www.bearingpoint.com/en-ie/institute/publications/issue-7/7-digital-questions-for-banks/

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