Here are the average annual IT investments from several of the largest European banks:
- BNP Paribas — $7.1 billion
- HSBC — $6.0 billion
- Societe Generale — $4.7 billion
- Deutsche Bank — $4.5 billion
- UBS — $3.5 billion
- Barclays — $3.5 billion
- RBS — $2.9 billion
- Credit Suisse — $2.9 billion
- Commerzbank — $1.4 billion
These figures include the costs of the banks’ own IT departments and the money used to purchase third-party products. The top four collectively overtake Google’s (Alphabet Inc.) investment figure of $21.4 billion.
The digitalization trend is currently a popular topic in mass media. For example, Deutsche Bank recently conducted an internal restructuring, which resulted in 975 people losing their jobs as traders and bankers. At the same time, half of the bank’s employees are working in IT roles. Take Britain’s TSB Bank as well, which partnered with IBM Services to deploy cloud technology and transform the former into a truly digital business. The budget for this project was an estimated £120 million.
I don’t know about you, but for me, it’s not just £120 million, but “120 million pounds sterling, Carl!”
In this article, we’ll discuss what European banks want from IT. This situation spells good news for us techies. The information I’m sharing will be about what is currently happening in Europe. More precisely, what we managed to dig up about the subject. There will be plenty of links to the sources we used if you want to dig deeper.
I hope some of the people reading this will be interested in my take on the changing banking market. But, if not, then at least there’s a list of companies that’ll come in handy if you want to send a commercial proposal or resume. This article will also discuss which areas of fintech are currently most in-demand.
When it comes to IT technologies, the largest European banks chose the following fintech companies to invest in:
In the center of the table, you can see the logos of the particular fintech companies that were invested in by the corresponding banks (which are denoted on the left side). The columns are sorted by industry for clarity:
- data analysis
- personal finances
- capital management
- stock markets
- lending institutions
- electronic payments
- regulatory technologies
This investment profile suggests that the goals of the investments are to comply with the regulatory requirements, to digitize existing services, and to offer new products to customers.
Based on the table, both R3 (blockchain) and AcadiaSoft (regulatory technology) are doing quite well for themselves.
So, banks are acquiring fintech and stimulating demand for it. The industry became especially active in 2020. Let’s take a look at why this is so and what it entails.
Reasons for the fintech boom
I’ll start with the thing that’s on everyone’s mind right now. I hope that the pie of popularity that resulted from the virus hasn’t yet cooled down enough to get a bite.
The forced transition to remote services has changed both the banks’ business processes and their customers’ behavior. 53% of all the world’s banks reported launching new digital solutions as a result of the pandemic. The first innovations were introduced to improve document flow (including updates to digital signatures), online apps, and platforms (for those not in the know, this can be considered as a sort of banking super-CMS), as well as blockchain technologies.
Over the next six months, most Europeans will be using e-wallets more frequently than during the self-isolation period. According to Deutsche Bank, by 2025, e-wallets will become the second most popular payment method after debit and credit cards. With the shift away from cash payments, 80% of the world’s central banks are developing their own digital currency. 40% have MVPs ready, and 10% are already playing around with pilot projects.
The Big Four — Google, Apple, Facebook, and Amazon — are also entering the European financial services market. 2019 has brought in fintech news from almost every brand. Google has announced the launch of personal bank accounts for its users. The project, codenamed “Cache”, is being developed in collaboration with Citigroup.
Meanwhile, Apple is already issuing its own credit cards, which will soon be available in Europe. Facebook is developing a cryptocurrency and Amazon is acquiring fintech companies to create its own financial ecosystem.
Given their immense audience size, access to vast data, and their processing capabilities, these giants are just as dangerous to traditional banks as they are attractive to the average consumer.
Another formidable rival group that’s currently raising the bar for services are “neobanks”, which exist entirely online. At the end of 2019, the neobanks’ user base in Europe amounted to 15.3 million people. By 2025, it is estimated to reach 50–85 million people (or 20% of the population that’s over 14 years old).
The rate at which neobanks are gaining new clients is being clearly demonstrated by the startup Zelf. This service exists without a dedicated app and works through instant messengers. It also allows users to request a card by using only their voice. In the first month alone, the number of pre-ordered cards exceeded 260,000.
4. Messengers and social media
The ability to chat with your bank online is currently in high demand. Online correspondence through third-party platforms is becoming a full-fledged customer communication channel for banking institutions.
43% of the entire internet user base claimed to use social networks for work in one way or another. At the same time, 63% believe that communication via online messengers is more convenient and private than other forms of communication.
48% of users prefer to contact organizations through various online chats, rather than by phone. At the same time, 47% of the paying audience is happy to make a secure payment through a messenger app or chat.
5. Regulatory requirements
The PSD2 Directive, which was introduced by the European Commission in 2018–2019, obligates banks to provide payment services with free and secure access to customer accounts. Formally, it doesn’t require using open APIs, but that’s often the easiest way to do it. This has formed the basis for “Open Banking”, which is an open ecosystem where many paid service providers operate, in addition to regular banks.
At the same time, according to the Basel III (banking regulation standards), investments in IT are deducted from the banks’ capital as intangible assets. In layman’s terms, a bank will not be able to cover its debts with the money that it spends on IT. This compels banks to meticulously choose the direction of technological development.
6. Super Apps
This is an Asian trend that does well to illustrate the future of Open Banking. WeChat, Grab, AliPay, Zalo, and the like, are all applications that allow their users to perform many operations from a single screen. For example, users can chat with friends, book a hotel, call a taxi, buy a plane ticket, transfer money, order food, and so on. Each Super App is capable of becoming the only necessary app for everyday life.
Brands in the European Union haven’t yet launched any fully-fledged counterparts. However, steps are being taken in this direction in the West, for example, by Google Maps. It’s already possible to book tables in restaurants, order a taxi, and purchase tickets for American trains through the app. There are also positive trends in Russia (see Yandex and Tinkoff apps).
The banks’ likely strategic choice in the near future is to create their own “Super App” or join one that’s already in development.
The growing use of technology is also illustrated by statistics that show the rising number of banking job vacancies. Thus, the demand for IT specialists continued to increase even during the pandemic. Although only statistics from the US were available on the subject, I will assume that this trend is comparable in Europe.
For example, Goldman Sachs reported that 44% of their current openings are for IT jobs.
IT specialists that are just starting careers in their respective fields (or those who are switching their specialization) should seriously consider becoming part of the finance industry. Likely, working in banking will soon be just as fun as working in game development.
So, what does it all mean?
All the factors mentioned above have created a new level of user expectations. 60–85% of bank clients of all ages prefer to use mobile and internet banking for everyday transactions. At the same time, 10–25% reported that they even prefer online banking for complex operations.
However, having a banking application alone is no longer enough to satisfy these expectations. Users want a flawless experience to go along with it. Thus, 40% of the audience abandons a digital product if the registration and/or the process of getting started seems too complicated (which means that there will be plenty of work for interface designers as well).
Bank customers aren’t shy about trying out different brands in order to find the best service. This attitude explains the massive influx of new users that are swarming neobanks. For example, 55,000 people connect to the British app Monzo every week, Revolut estimates an influx of 600,000 per month, and the German company N26 has an audience that spans 25 countries and has reached a total customer base of 5 million people. Since users don’t always close their old bank accounts when they switch banks, the dramatic turnover is easy to underestimate.
New user priorities also include:
- the ability to shop entirely online
- understanding and connecting with the brands’ values
- having confidence in the security of personal data
- use of data as a currency (for example, in exchange for bonuses)
- round-the-clock access to services
Meanwhile, according to Deloitte, traditional banks’ current applications don’t meet the “digital” needs of customers. The data shows that people believe the process of entering an app is poorly realized (41% of cases show dissatisfaction), as is the integration with external services (33%). Across the board, people want more functionality from banking applications.
It’s worth noting that the list of the most used banking apps doesn’t coincide with the list of the largest European banks:
- Barclays Mobile Banking (UK) — 7M people per month
- CaixaBank (Spain) — 6M people per month
- MaBanque (Crédit Agricole) (France) — 5M people per month
- Sparkasse (Germany) — 2M people per month
- Intesa Sanpaolo Mobile (Spain) — 2M people per month
These figures show a modest level of traffic when compared to tech startups. Everything points to the fact that leaders of traditional banking haven’t yet mastered this new reality.
In terms of overall satisfaction with banks, the picture is as follows:
The United Kingdom:
It’s quite apparent that branchless banks (indicated as Direct Banks on the graph), which include fully digital banks, carry much more favor with their clients. It’s doubtful that traditional banks are happy with this gap.
By the way, there’s some great news for techies that are based outside the EU: less than 60% of European job vacancies can actually be filled by their respective countries’ residents. Considering the popularity of remote work, which has been steadily growing since this Spring, our compatriots have high chances of landing a job if they apply in the promising neobank sector.
However, for traditional banks, the news is rather glum, because to retain and expand their customer base, they will have to change.
This line marks the end of the article.
Made by opium.pro. Writers: Denis Elianovsky, Stanislav Lushin. Thanks to Stanislav for the job well done in collecting statistics. An additional thanks to Elena Efimova for the picture in the header, Tatiana Kitaeva for the editing, and Pavel Chernetsov for the English translation.