Banks are struggling to meet customer expectations and achieve their priorities, hindered by technology challenges and a lack of industry standards, according to a new global study conducted by the IBM Institute for Business Value (IBV) in collaboration with the Banking Industry Architecture Network (BIAN) and Red Hat. The study reflects responses from over 1,000 senior banking leaders and more than 12,000 consumers, revealing significant disconnects between the two groups.
One of the key findings of the study is that 70% of banking executives indicate that embedded finance is either core or complementary to their business strategy, yet only 20% currently offer embedded finance solutions. Embedded finance refers to the integration of financial products and solutions within the customer journey of non-financial services organizations to enhance the customer experience.
The research also highlights the challenges faced by banks in terms of privacy and security in ecosystem innovation, with these challenges being cited as the top two barriers to innovation. Additionally, gaps in technology infrastructure modernization, the lack of application programming interface (API) standards, and the insufficient allocation of resources to privacy and security are slowing down the progress of embedded finance platforms and impeding the potential of emerging technologies such as generative AI.
While 80% of consumers currently prefer to deposit their salary and keep their savings in traditional banks, 16% of respondents globally are already comfortable embracing the full digital experience with branchless institutions. The study also reveals that many consumers are seeking a higher level of engagement from their financial institutions, with younger respondents being particularly open to receiving insights on better ways to save and guidance on investing.
Both banking leaders and consumers agree that security is of paramount importance. However, banking leaders overestimate the importance of peer-to-peer payments and buy now pay later (BNPL) services compared to consumers, who prioritize good customer experience, mobile wallet functionality, and rewards.
According to Shanker Ramamurthy, Global Managing Partner Banking & Financial Markets at IBM Consulting, banks are facing challenges from non-traditional competitors and regulators pushing for open banking standards. To address these challenges, Ramamurthy emphasizes the need for banks to establish a modern hybrid cloud architecture, leverage emerging technologies like generative AI, and participate in a robust ecosystem of partners.
Hans Tesselaar, Executive Director of BIAN, highlights the importance of technical standards and a coreless banking approach to transformation in order for banks to benefit from technological developments and create the bank of the future.
The full report, titled Embedded Finance: Creating the Everywhere, Everyday Bank, is available for download.
In conclusion, the study reveals that banks are facing significant challenges in meeting customer expectations and achieving their priorities. Embedding finance into the customer journey is seen as crucial by banking executives, but currently, only a fraction of banks offer embedded finance solutions. Privacy and security challenges, along with gaps in technology infrastructure modernization and the lack of API standards, are hindering progress. However, consumers are increasingly seeking more engagement from their financial institutions, presenting opportunities for banks to improve their services and experiences.