Banks Must Embrace Fintech Collaboration and Digital Ecosystems for Personalization

In a comprehensive global study commissioned by banking software firm Temenos, conducted by ‘Economist Impact,’ it has been emphasized that banks must adapt to disruptive technologies and actively engage in digital ecosystems to retain their relevance in the evolving financial landscape, as highlighted in The Fintech Times. Surveying 300 banks worldwide, the study, titled ‘Byte-sized banking: Can banks create a true ecosystem with embedded finance?,’ underscores the need for banks to reevaluate their roles in response to growing competition from payment companies, technology disruptors, and e-commerce players offering embedded finance solutions.

One of the major driving forces behind this transformation is the increasing demand for personalized financial products and services. Fintech companies, due to their agility, are often better positioned to meet these consumer expectations. The report highlights that approximately 79 percent of surveyed banks anticipate banking to become an integral part of consumers’ lives and businesses’ value chains.

Moreover, the study found that a significant portion of banks envisions their future business models shifting towards offering banking-as-a-service (BaaS) to brands and fintech companies while enabling embedded finance within their own offerings. Almost twice as many banks aim to preserve their consumer-facing experiences and establish themselves as genuine digital ecosystems.

Interestingly, the survey reveals that new technologies are poised to have a more substantial impact on banks in the next five years than customer demands or regulatory changes, with 63 percent of respondents concurring. A CEO from one of the surveyed banks emphasized, «If you do not have modern technology, younger generations will not bank with you, it doesn’t matter how long you’ve been around.» Moreover, a significant majority, 71 percent, believe that unlocking value from artificial intelligence (AI) will be the primary factor distinguishing successful banks from their competitors, with generative AI projected to drive banking innovations, as acknowledged by 75 percent of respondents.

Jonathan Birdwell, the global head of policy and insights at Economist Impact, emphasizes that maintaining a direct connection with consumers compels banks to transform into true digital ecosystems. He also predicts that customer-centricity will lead banks to offer more embedded environmental, social, and governance (ESG) and sustainable banking solutions.

Collaboration with fintech firms and technology providers is viewed as essential for banks seeking expertise in emerging technologies. The study suggests that relationships within the industry are expected to evolve in the coming years, with 44 percent of respondents anticipating banks acquiring majority stakes in fintech companies, and 32 percent foreseeing market consolidation among challenger banks within the next one to three years.

Kanika Hope, Chief Strategy Officer at Temenos, echoes the study’s findings, stating that «Banks need to tap expertise in new technologies like cloud and AI as well as collaborate with fintechs and technology companies to offer embedded finance as well as to build digital ecosystems.» Furthermore, the report underscores that public cloud adoption is gaining traction, with 51 percent of respondents believing that banks will cease to own data centers in the next five years. Environmental concerns, along with business agility, efficiency, and security, are cited as driving forces behind the accelerating shift to the cloud within the banking sector.