By Roy Urrico
Finopotamus aims to highlight relevant analyses, reports, surveys and white papers that provide a glimpse as to what is taking place and/or impacting credit unions and other organizations in the financial services industry.
Financial institutions are on a self-care binge, according to a new survey of 785 global financial from global fintech organization Finastra. At the top of their list: prioritizing new technology adoption and innovation, growing their business and meeting current and future customer expectations.
“Financial Services State of the Nation Survey 2021” surveyed financial institutions in the U.S., U.K., Singapore, France, Germany, Hong Kong and the UAE in March 2021. The report provides insight into the open banking and finance landscape, technology and initiatives set to make an impact in financial services over the next year, and how COVID-19 affected the financial services industry.
Finastra found global financial institution investment strategies for 2021 shifting from defensive to offensive; defined by innovation, with priorities centered on helping cut costs or improve efficiencies (50%), growing business (46%), and meeting current and future customer expectations (42%). In a similar Finastra study conducted in 2020, staying ahead of the competition was the number-one driver of technology adoption and innovation. In 2021, beating out competitors did not even make the top three.
The research also revealed that most organizations are already benefitting from open banking and open finance. With the world adapting to a new normal and a likely hybrid way of operating for many organizations in the future, the research strongly confirmed collaboration remains important to financial services institutions despite several existing and new barriers surrounding regulation, security, and technology.
Core Technologies Emerge
Finastra identified mobile banking, banking-as-a-service (BaaS) and artificial intelligence as the core technologies set to undergo improvement or deployment in the next 12 months. Eighty-five percent of respondents at global financial institutions believe BaaS will make an impact over the next year; 40% believe the impact will be significant.
“Our findings show how financial institutions are already benefiting from open banking and, new this year, a growing role for BaaS. We believe that these initiatives have already started paving the way to true open finance, helping financial services institutions to develop and enhance the services they provide to their customers,” said Eli Rosner, chief product and technology officer, at Finastra. “For BaaS specifically, 81% of global respondents see it as a means to grow business, enhance their distribution channels, shorten time to market and streamline operations. Valuable insight from so many financial institutions sets the tone for the evolution of financial services as banks and their customers adapt beyond the pandemic and, together with the industry support they provide, serve their communities better.”
Additional top findings include:
· More than 9 in 10 respondents agree that open banking is important to their organization; 97% of those that already use open banking recognize that it has provided benefits to their business.
· Collaboration remains important to 94% of financial services institutions, though there remain several existing and new barriers surrounding regulation, security, and technology.
· Seventy-eight percent of financial institutions believe shared data and infrastructure will become the norm across the industry.
· Almost 70% of FIs said they feel constrained in their technology and digital banking investments, citing cost pressures.
Banking-as-a-Service Headed to Credit Unions?
What about the impact on credit unions? Chris Zingo, senior vice president and general manager, Americas at Finastra, said, "The three most important takeaways for credit unions from Finastra's survey are: 1) banking-as-a-service, embedded banking services, and open banking will rise in prominence, 2) supporting vulnerable audiences and the underbanked is a key priority for their peers, and 3) U.S. financial institutions invested more than their international counterparts in technology due to the pandemic."
Zingo noted, “Credit Unions really don’t have a choice but to grow. Between 2012 and 2020 we saw a 28% decrease in the number of credit unions. In that same period, credit unions with over $200 million in assets actually grew by 40%, while those with less decreased by 31%.” He added, the message is clear: growth is key to survival. “In this same period, we’ve seen a massive increase in global bank spend on consumer experience.”
Zingo pointed out credit unions are certainly embracing the idea that it is about consumer empowerment and delivering a seamless experience. “One way we see this happening is by enabling open finance and embracing banking-as-a-service. Open finance puts the customer at the center of open banking and allows them to share their financial data across financial solutions, products and platforms, from bank to payroll, mortgage to 401k. Seventy-eight percent of respondents to Finastra's survey believe shared data and infrastructure will become the norm across the industry.”
COVID-19, BaaS, Financial Literacy and More…
The Finastra research found that COVID-19 had a significant impact, as with every other industries, on the financial services sector. It served as an accelerator for businesses to adapt, invest in new technology, and to counter related threats surrounding cybersecurity. U.S. financial institutions increased their tech spending by 25% due to COVID-19 compared to 9% globally.
Zingo said, "The pandemic stiffened competition for digital banking offerings and led to a significant spike in tech investment for U.S. financial institutions. Still, budgets are not growing fast enough to match banks’ appetites for innovation. Credit unions are likely to leverage that increased tech spend to improve efficiencies, grow their business, and meet current and future member expectations."