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Tuesday, 03 May 2016 22:28

Banking industry shifting to startups to meet digital services needs: Gartner

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Retail banks around the world are expected to use startup providers - overtaking incumbent application vendors - to replace legacy online and mobile banking systems over the next four years, according to analyst firm Gartner.

Gartner warns that the incumbent vendors have been slow to respond to new requirements of the banking industry with 25% of retail banks predicted to use startup providers by the end of 2019 as they face pressure to increase efficiencies and reduce costs while delivering next-generation digital services.

According to Gartner, new vendors are emerging to meet both customer and bank needs for channel integration and dynamic customer experiences that make banking easier to accomplish on the devices customers want to use. “These vendors challenge the traditional — often incumbent — vendors of traditional online and mobile banking and core banking solutions.”

"Startups and emerging providers of digital banking platforms offer banks interesting opportunities for innovation," said Stessa Cohen.

"However, CIOs must prepare to manage the challenges of evaluating and selecting new vendors that may not have proven track records in the financial services vertical or may simply be new and untried without an extensive customer base. It can be difficult for CIOs to justify investment in their solutions to their boards and regulatory agencies, but don't use that as a reason to exclude new vendors."

Gartner advises bank CIOs to work with business leaders and other key stakeholders to assess the bank's “comfort with, and ability to manage, the risks associated with using new providers, especially financial technology startups”.

Gartner reiterates its observation that one of the most important reasons the market for digital banking solutions has opened up is that most legacy vendors that offer bank channel applications - for both consumer and business customers - have been slow to react to new customer requirements and demands of digital banking.

According to Cohen, incumbent vendors often do not support open architectures that decouple the presentation of services from the services and transactions themselves and, “crucially, enable the bank to bring new and existing processes together to offer innovative digital services”.

“As a result of both customer and bank IT and business requirements, new vendors have emerged with digital banking capabilities that enable bank business and IT staff to offer apps and applications that support personalised, customer-centric banking experiences, data and behavioural analysis, location and context sensitivity and creation of a partnership ecosystem to create new services leveraging partner data, transactions and processes.

Cohen stresses that the emerging shift in the banking industry away from incumbent providers is why many banks developing digital banking strategies to meet customer demands have sought out new providers to replace their existing online and mobile banking solutions with digital banking platforms.

Gartner says that open unified digital banking solutions make it possible to deliver new digital products and services, and create a multi-dimensional customer experience across all devices and channels, enabling the bank to develop and deliver services for use by both bank staff and customers, via any device or channel.

The analyst firm also notes that digital banking platforms may include a broad range of capabilities including financial management, payments, marketing, loyalty, analytics and customer communication management.

And, it suggests that bank CIOs should be prepared for extensive, potentially disruptive changes in the market, including merger-and-acquisition activity, heightened competition and new entrants from other geographic regions.


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Peter Dinham

Peter Dinham - retired in 2020. He is a veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

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