Banks increasingly see big tech firms such as Apple, Google and Amazon as a major threat to their business, a survey of 198 senior bankers has revealed.
The report from core banking software provider Temenos showed that 23 percent of respondents see their most significant competition coming from outside the traditional financial sector. The figure has grown from 18 percent in 2013, and 11 percent the previous year.
A number of tech companies have shown a desire to offer some form of financial service, predominantly around payments. This includes the launch of Google Wallet in the US in 2011, while Apple has launched ApplePay service, and Facebook has indicated it may offer a payments service in Europe.
The competition with non-traditional players is being driven by growing digitisation of services in the financial services sector, according to report author Ben Robinson.
“Clearly, rapid digitisation, in conjunction with other factors – such as diminishing customer loyalty and transformative technology changes – is opening the industry to these technology vendors, many of whose business models are built on an ability to turn vast quantities of data into meaningful customer insights,” he wrote.
Aside from the large tech firms, banks also see competition from peer-to-peer platforms, an area which has attracted a significant number of financial technology start-ups, such as the Lending Club and Funding Circle. This was cited as the biggest challenge by 19 percent of respondents.
At the same time banks are becoming less concerned about traditional rivals, such as large incumbents lenders cited by 20 percent, start-up banks (17 percent), and supermarkets providing financial services (7 percent). All of these figures are lower than the previous year.
However, large banks hamstrung by legacy IT systems will still need to be wary of more agile competitors from within the finance sector, Robinson warned.
“The only point to note is that large banks must act if they are to withstand the competitive threat from new entrants, such as removing legacy applications and investing in analytical capabilities,” he said.
“The window for action is shortening, as both the rate of innovation and change accelerates, and these new entrants eat away at existing banks’ margin and, by extension, their available funding to make the necessary changes.”
The survey also found that, despite ongoing problems with legacy systems at many banks, 53 percent of respondents said their businesses are unlikely to take action to overhaul IT without regulators forcing their hand.