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Banks to offer more ESG-focused banking plans to customers in the next 5 years, research reveals

By Puja Sharma

January 03, 2024

  • AI
  • Cloud
  • Digital Banking

In the last iteration of Economist Impact’s global banking survey, conducted in 2021, banks were facing a perfect storm as the pandemic accelerated consumer use of online banking, hastening the closure of bank branches, and seemingly giving a solid advantage to digital-first competitors.

With FinTech start-ups, payment players, super-app platforms and tech giants continuing to take market share as they gained the ability to offer more traditional banking services, incumbent banks were compelled to reassess their priorities and business models.

It is no surprise, then, that new technologies are expected to have the biggest impact on banks in the next five years, according to 63% of respondents in this year’s survey—a finding that has been consistent since 2019. “When the young generations, who were born with phones in their hands, become clients, they will have much more of a focus on the technology,” said Schuyler Weiss, CEO of Alpian, a Swiss neobank (that is, a bank that operates exclusively online, without bricks-and mortar branches).

Weiss added, “If you do not have modern technology, they will not bank with you; it doesn’t matter how long you’ve been around.”

Byte-sized banking: Can banks create a true ecosystem with embedded finance

More than half (51%) of survey respondents agree that banks will no longer own any data centres because they will have moved to the public cloud in the next five years. Over two-thirds (70%) of banks agree that a multi-cloud strategy will become a regulatory pre-requisite in the next five years. As part of the move, banks are prioritising digital channels (48%), international core banking services (34%) and payments (34%) in their migration to the cloud.

The challenge from FinTechs and tech companies, as well as consumers’ persistently growing expectations for better, more personalised products and services, are forcing banks to assess their role and how they must adapt. Embedded finance is encouraging banks to drop any reservations they may have had about opening up and becoming true ecosystems.

The need to tap expertise in emerging tech like AI similarly boosts the case for greater collaboration with FinTechs and technology companies. And environmental concerns have joined the list of reasons— alongside efficiency and security—why banks are accelerating the shift to the cloud. As they become increasingly embedded in consumers’ lives, banks could not only deliver more for their customers and support the shift to net zero but also to secure their place at the centre of the ecosystem.

Kalliopi Chioti, Chief Marketing and ESG officer, Temenos said, “Evolving consumer preferences are putting immense pressure on banks to operate according to a clear set of values and are actively moulding banks’ agendas and strategies. Whether using artificial intelligence to align investment strategies with clients’ values, or reducing their carbon footprint through economies of scale on cloud solutions, technology can be a powerful ally for banks on this journey.”

Key Highlights:

  • Around 73% of banks are expected to offer more sustainable banking propositions in the next five years in response to increasing customer centricity, according to a new Economist Impact report for Temenos, which surveyed 300 banking executives globally.
  • As banking becomes more “embedded” in consumers’ lives and businesses’ value chains, public attention is directed toward banks’ values and climate credentials.
  • Research by Kearney concurs, finding that one in four European consumers (24%) will likely switch providers if their bank is not engaged in ‘ESG’ issues. Generation Z is expected to continue to drive this shift, armed with a long-term investing approach and an appetite for ethical and sustainable banking options. Three out of every five (61%) banking customers in the U.K. said they want their banking provider to “do more to create a positive, social and environmental impact”.
  • As a result, over one-third (37%) of banks are investing in low-carbon technologies and decarbonisation start-ups, with an additional 31% pursuing sustainability strategies that reduce emissions in their supply chains and internal operations.
  • These shifts in consumer sentiment have translated to an increase in sustainable investment. 74% of banks want to invest in environmentally friendly projects in the next five years, while 64% consider diverting capital from carbon-intensive industries.
  • As banks look to reduce their carbon footprint, they are also increasingly moving operations to the public cloud, with over half (51%) of respondents agreeing that banks will no longer own private data centres in the next five years.

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