According to research by East & Partners for Finastra, three out of four global banks intend to connect with an average of three fintech startups within the next eighteen months to enhance their digitization efforts.
The study involved 783 interviews across 260 banks and 393 community banks in North America. It revealed that the majority of respondents (56%) prefer to integrate with a platform of fintech solutions, while only 6% opt for building capabilities in-house. This trend is particularly strong in Europe, where 73% favor integration and just 5% choose in-house solutions.
Key motivations for this shift include reducing operational costs (46%), facilitating the deployment of new technology (43%), and aligning with evolving environmental, social, and governance (ESG) and compliance needs (37%).
Digital transformation aimed at improving customer experience remains a top priority, with global financial institutions investing an average of $367.6 million in transformation initiatives in 2023. In Europe, this figure skyrockets to an average of $886 million. However, only 20% of banks feel they are ahead on their digital journey, while 54% believe they are falling behind.
Isabel Fernandez, EVP lending at Finastra, states, “In an environment marked by uncertainty, high inflation, fluctuating interest rates, and recessionary risks, banks face mounting pressure to reduce operational costs while enhancing customer service. Our survey shows that banks recognize they cannot navigate these challenges alone. They are turning to fintech partners and favoring integrated fintech solutions to adapt more swiftly and cost-effectively.”
Efforts by global banks to modernize their legacy systems are already yielding improvements in profitability and productivity, as noted in the latest Retail Banking Radar report from consultancy Kearney.
This report, which analyzed 89 banks across 21 European markets, highlights that income per customer has reached its highest level since 2015, averaging €650. Additionally, productivity has seen significant growth over the past 15 years, with productivity per employee nearly doubling (197%) since 2008, and productivity per branch nearly tripling (284%).
Roberto Freddi, Partner at Kearney, comments, “It is evident that recent advancements in technology and digitization have been pivotal in enhancing the retail banking sector’s performance. These banks now have a significant opportunity to further leverage technology by making strategic investments in digital transformation. Building business resilience will also be critical as they prepare to tackle future challenges.”