2020 – A shock to the system for the banking industry

During a time of intense industry disruption, it seems as if the banking industry has tried to do five years of innovation in one year of time. 2020 will have profound impacts on the sector. James Buckley, vice president and Europe director for Infosys Finacle, discusses how.

James Buckley, Infosys

“Fundamentally, if you look at where the profits are being made, they’re being made in commercial and corporate banking, on top of certain niche areas where you can charge fees in the bank,” says Buckley.

“There’s also mortgages, where there’s obviously significant income from that business. Everywhere else the banks aren’t really making money.

“This year has caused a shock to the banking industry. Banks have realised they must look at where they’re at and what their cost structures are in a much more considered way.”

Buckley says this realisation has made a lot of retail banking institutions cut back on their spend.

Yet those same institutions are stuck in a conundrum. Buckley says they have grown used to a “particular structure” over decades, one that isn’t fit for purpose going forward. Many have undertaken an introspection and realised a time of change is needed.

“Bank are cutting more staff and more branches, but underneath all that there’s a fundamental drive to digitise a lot further. In other words, banks want to change their target operating model to become a much lower cost business.”

Challenging times

Becoming those low-cost businesses has been a shock to the system for some institutions. Shutting down support functions and moving them to a virtual environment has proved to be a challenge for several banks.

“There was certainly about eight weeks to 12 weeks of disruption, while the banks and other financial services organisations really got moved into an online remote working mode,” says Buckley.

During this time of bedding down would have been when new budgets were calculated, having a knock-on effect on system selection and implementation among banks.

Since then there has been more analysis from an IT architecture point of view. Banks have had time to take stock of where they are, says Buckley. “There are a lot more informed discussion going on now, based around what [banks] want to do.”

Looking to 2021

Buckley expects that the first two quarters of 2021 will see an increase in fintech activity. “Banks have done a lot of thinking, and have emerged knowing what they want to implement a low-cost agile business model.”

Commercial and corporate banks are in an even better place for innovation and change, emerging from the pandemic relatively unscathed. That profitability, argues Buckley, will create a spotlight on those aspects of the bank. It lead to higher spend on digitisation and improvement.

Big Tech firms and large fintechs remain a disruptive challenge to traditional banks, adds Buckley. “Those that have already had the funding have carried on with their plans as normal.

“The Googles and Apples have moved along at a nice pace. They are continuing to pick up more and more business and creating networked businesses that interconnect with major banks.”

Buckley believes that 2021 will also see a shift from West to East, as the latter recovers from the COVID-19 pandemic at pace.

“East Asia will really become the epicentre for innovation and fintech. India has been badly affected by the pandemic but within 18 months it will be powering away again. China is chomping at the bit in terms of becoming the largest economy. East Asia is going to be the centre from an economic point of view and it’s up to the fintech industry to react to that.”

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