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FinTech providers are making significant inroads with customers, yet the vast majority of banks are not adequately prepared to manage this threat. Less than one quarter feel they have an advantage over FinTech firms in terms of agility or ability to innovate to address challenges, according to the 2016 World Retail Banking Report (WRBR), released by Capgemini and Efma, which features data from more than 16,000 customers across 32 countries and interviews with banking execs. It finds that 63% of customers are now using FinTech products or services, and are much more likely to refer friends and family to their providers (55%) than to their bank (38%). However, while 96% of banking executives agree that the industry is evolving toward a digital banking ecosystem, only 13% have the systems in place to support it.

With penetration highest in the emerging markets and among younger customers, FinTech service providers are gaining popularity among consumers thanks to the perception that they are easy to use (82%), offer fast service (81%), and provide a good user experience (80%). Only 36% of banks, however, agree that FinTechs offer fast service (a 45 percentage point gap) and only 40% feel that new entrants provide a good experience (a 40 percentage point gap).

Banks view trust as their greatest strength (70%), but FinTech firms are quickly catching up, with the percentage of customers who completely or somewhat trust their FinTech provider reaching more than 88% across all regions. “The inability of banks to innovate leaves the door wide open for FinTech providers to attract new customers,” says Anirban Bose, Head of Global Banking and Financial Services, Capgemini. “There is opportunity for banks to begin working collaboratively with these companies, but they must formulate a rapid response plan to do so before the swiftly evolving bank environment outpaces their window for change.”

In order to respond to the threat these companies pose to more traditional models, nearly two-thirds of bank executives say they need to view FinTechs as partners, with the majority of bank development strategies taking the form of collaboration (46%) and investment (44%). 18% say they plan to acquire FinTech firms or their technology. The two have strengths that are complementary. While FinTechs excel in agility, innovation and exploiting new technology, banks offer capital, deep customer bases and expertise in working with regulators.

By Scott Thompson

by Scott Thompson
Scott is Senior Editor at IBS Intelligence. You can follow him on Twitter and contact him at: Scott.Thompson@ibsintelligence.com
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