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Legacy banking vendors in fintech firing line

03 May 2016  |  11341 views  |  5 power leads

It's not just creaky old incumbent banks that face a threat from emerging digital startups; the established vendor community that has grown to serve these banks may also be facing a bleaker future, according to new research from Gartner.

Gartner predicts that by the end of 2019, 25% of retail banks will use startup providers to replace legacy online and mobile banking systems as they respond to pressure to increase efficiencies and reduce costs while delivering next-generation digital services.

Incumbent vendors often do not support open architectures that decouple the presentation of services from the services and transactions themselves, says Gartner, creating an opportunity for new vendors to fill the gaps by offering apps and applications that support personalised, customer-centric banking experiences, data and behavioural analysis, location and context sensitivity across all devices and channels.

"This 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," says Stessa Cohen, research director at Gartner.

Digital banking platforms may include a broad range of capabilities, says Cohen, including financial management, payments, marketing, loyalty, analytics and customer communication management.

Gartner says bank CIOs should be prepared for extensive, potentially disruptive changes in this market, including merger-and-acquisition activity, heightened competition and new entrants from other geographic regions.

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

Comments: (5)

Colin Weir
Colin Weir - Moroku - Sydney 03 May, 2016, 09:55

Nice work Stessa!

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Derek Corcoran
Derek Corcoran - Avoka - Broomfield 03 May, 2016, 16:21

It's not just "functionality" that's missing - it's agility. 

Many banks feel that they are held back from innovating by their major IT vendors. That's a huge problem. Especially for smaller banks and CU's. 

 

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Chetan Ghadge
Chetan Ghadge - Wipro - Pune 04 May, 2016, 03:06

Banks need to adopt 2 speed architecture . A fast moving front office and slow moving but strong and secure back office. 

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A Finextra member
A Finextra member 04 May, 2016, 08:45

From my experience with some suppliers I can confirm that #legacy #banking #suppliers are a significant part of the current mess #fintech can comfortably feed on for the next decade! Very good post on something most simply do not see.

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Colin Weir
Colin Weir - Moroku - Sydney 04 May, 2016, 09:06

This is the way of tech. Despite large corporate R&D budgets, innovation occurs at startup and its been like that for decades. The large suppliers suffer from the same cultural juxtaposition to innovation as do the bigger financial services institutions. Burdened by the day to day rigours of running listed businesses and driving metrics focussed on success, they leave opportunities for smaller companies, that are funded and aligned to experimentation and failure, to create breakthroughs and find ways to achieve early wins. These are spotted by venture capital and institutional money to get them to the next stage, usually death or acqusition or a traditional supplier caught asleep at the wheel and in search for competitive advantage. 

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