With the EU’s Second Payment Services Directive (PSD2) and  open architecture framework set to come into force next year, regulation may well tip the scales between banks and fintechs for customer loyalty.  Concessions must be made on both sides along the way, but in the end the collaborators will be the ones to survive – that’s according to an in-depth study released today by Temenos, the software specialist for banking and finance.

The report explores one central theme: ‘Symbiosis: Your bank has your trust. Can fintech make you love it?’ The report, the fourth in a series conducted for Temenos by the Economist Intelligence Unit (EIU), offers a new twist in the ‘tug of love’ story of banks and fintechs under changing regulatory and compliance rules.

David Arnott, Chief Executive Officer at Temenos, says: “The struggle between banks and fintechs for customer loyalty is not new, however new regulation and technology change is now driving a shift towards collaboration. Banks with a modern core and an open and flexible architecture will be best placed to seize the advantage and thrive. Temenos is proud to be working closely with banks and fintechs on their digital strategies and championing collaboration via the Temenos MarketPlace”

Renee Friedman, the editor of the report from the Economist Intelligence Unit, adds: “Banks will increasingly have to adapt their culture and digital strategies to their customers’ needs if they are to compete, not expect their customers to bend to theirs.”

About the survey
The Economist Intelligence Unit surveyed 200 senior retail banking executives about regulatory, customer, security and technology influences on the industry up to the year 2020.

In addition, in-depth interviews were conducted with 36 senior executives from banks of all sizes, start-ups, venture capitalists and mutual fund managers.

The key findings show:

• The regulators will decide. Capital and compliance will shape incumbents and newcomers alike. Banks cite regulation as the most impactful trend in the coming years: bank capital requirement regulation (54%), bank product suitability regulation (53%), product design and transparency regulation (47%); regulatory fines & recompense orders (30%)

• Into the Unknown: American banks worry about regulation the most, despite a promised rollback. European policy direction is more certain yet onerous.
• Resistance is futile. The EU’s Second Payment Directive (PSD2) and open architecture are game changers. Banks may lose their customers’ loyalty, fintech could hit compliance barriers.
• Complacency is not a virtue.  Fear of peer-to-peer lenders and robo-advice may have peaked.  Non-banks could still steal deposit and lending business – and profit unless banks improve the customer experience.
• No cash, no cheques. If banks are smart, they may still win the war to build truly universal digital networks.
• Banks main concerns on cyber security are lack of system preparedness in the event of a cyber-attack (65%) and the ability to maintain data security (60%)
• The possibilities of blockchain are still not fully understood;  34% think of it only as a tool to reduce financial crime while 34% see its greatest value in increasing the speed and reducing the cost of back office functions
• The majority of bankers surveyed (55%) think that Anti-globalisation movements will negatively affect retail banking by 2020.