Traditional banks need to do more than gloss over back-end systems with fintech paint

To keep up with changes in customer demand, traditional banks must invest in middle- and back-office IT to underpin collaborations with fintechs.

While banks are investing in the kind of apps that customers want to use, complex and manual processing still exists in their middle and back offices, leading to disjointed customer service levels and disappointing collaborations with fintechs.

According to the latest World fintech report from IT services company Capgemini, traditional banking IT is holding banks back from fruitful collaborations with fintechs.

Capgemini’s report revealed that just 21% of banks believe their systems are currently agile enough to collaborate with fintechs. If they address this, banks could go some way to improving their so-far disappointing collaborations with fintechs.

“Now is the right time for banks to catch up from front to back-end to offer the best customer experience,” said Anirban Bose, CEO of Capgemini Financial Services. “With data-fuelled, hyper-personalised experiences in real time, big tech firms and challenger banks have demonstrated their ability to win customers over.

“In contrast, while traditional banks have invested heavily in front-end IT infrastructure to improve customer experience, efforts so far have not measured up to what has become customary across other sectors, especially with tech providers.”

In the finance sector, increased collaboration between traditional banks and fintechs will accelerate, but banks need to make changes to ensure they are ready for it. The Capgemini report said just 6% of banks have achieved the return on investment they expected from their collaboration with fintechs so far.

There is also a high level of disappointment within the fintech community, with 70% frustrated with incumbent process barriers at traditional banks, according to the report. A total of 70% of fintechs questioned by Capgemini said they “don’t culturally or organisationally see eye-to-eye with bank partners”. Half said they had not yet found the right collaborative bank partner.

Capgemini’s Bose said effective collaboration requires people, business and process maturity. 

On the customer side, the report revealed that the gap between what customers expect and what traditional banks currently deliver has never been wider. Beyond modernising the IT engine, banks face cultural challenges if they are to make fintech collaborations work.

And there is a lot to lose for banks that get it wrong with high levels of customer dissatisfaction. The report found that despite heavy investment by banks in digital technology to change how they package and deliver products to customers, their attempts are largely proving inadequate. Half of customers said they do not receive a personalised relationship from their bank and 60% said they cannot make direct-debit payments on several merchant sites.

Almost half of tech-savvy customers said they are frustrated with the range of products and services offered by their primary traditional bank. This is leading them to consider moving to a digital challenger bank in the next 12 months.

Capgemini’s Bose said businesses will evolve and emerge from the Covid-19 crisis in different and profound ways. “For traditional banks, this will translate into an even greater need for digital experience through further collaboration with fintechs,” he said. “Since we began this report three years ago, fintechs have moved from disruptors to mature players, and it is now essential for incumbent banks to consider them not only as formidable competitors, but as necessary partners of choice to meet changing consumer expectations.”

This is backed up by a recent study by financial consultancy the deVere Group, which found that the use of fintech apps in Europe surged by 72% in the week following the Covid-19 lockdown. At the same time, the use of cash in the UK dropped by 50%, according to UK ATM network Link.

Russ Shaw, founder of tech startup network Tech London Advocates, said there is some optimism that when the world emerges from the Covid-19 pandemic, the digital and tech world, and the things it can offer, will become even more critical.