In a study of retail bank IT leaders and consumers, undertaken by Peru Consulting, the majority (57%) of IT leaders believe it’s likely that GAFA companies will enter the UK retail banking sector within the next five years.

If and when GAFA companies offer retail banking services, more than a third (36%) of consumers claim they would consider switching to them, rising to half (50%) among 25 - 34 year olds.

When asked why they might consider the change, 41% of consumers said GAFAs would probably offer better technology, with 40% citing the potential of more innovative products and services.

According to the research, , the risk posed by GAFA innovation appears to be seriously underestimated by banking IT leaders. Less than five percent of respondents identified the temptation of new technology, such as mobile apps, as the biggest reason for customers to switch banks.

Younger consumers were more likely to answer that ‘it makes sense to integrate my banking relationship as I’m an existing customer’ (31% of 18 - 24 year olds versus an overall average 20%), suggesting that they are already anticipating the benefits of shopping and banking with a single brand in the future.

Ian Robinson, Principal Consultant at Peru Consulting, stated: “Consumers increasingly expect to receive a highly personalised service from their retail banks in line with their positive experiences with online retailers. GAFA companies have already harnessed the power of big data analytics and algorithmic programming to provide targeted offers to individual customers and retail banks will need to be aware of the power that this brings.

“There is an enormous opportunity for traditional banks to evolve their customer experience and learn from innovation introduced by a diverse range of new market entrants. But technology teams are already under enormous pressure to respond to growing cyber threats and maintain extensive legacy systems and networks.

“Traditional banks need to decide if they can turn the corporate ship around fast enough in the face of growing competition, or take a considered look at which lifeboats to launch. Building on and executing new IT strategies, refreshing architectures, creating innovation hothouses, acquiring the right businesses and driving efficiency programmes are just some of the lifeboats that may need to be launched.”

Commenting on Peru’s research report, Adam Tavener, co-founder of funding portal AlternativeBusinessFunding.co.uk (ABF) said: “The banks need to figure out what customers will need in five or 10 years’ time, not just respond to what is happening now. What we’re all learning is that no-one in this industry is too big to fail.”

Peru Consulting outlines five steps that traditional banks can take to adjust to a fast-changing business environment:

1. Have a clear purpose
The technology strategy must fully support the business strategy and be clear and simple enough to everyone in the team to embrace and deliver. Everyone, both in-house and outsourced, needs to understand their role in minimising the time and money-sapping demands of unforeseen operational events.

2. Security is everybody’s objective
Good management, user education and governance can help mitigate security risks. Our research found that there is plenty of room for improvement: a third of retail bank senior technology leaders believe their organisations don’t review cybersecurity policies regularly or don’t know if they do or not. More than half (55%) don’t know or don’t believe banks refresh IT policies regularly enough.

3. Keep it simple
A periodic review of the number of systems, networks and partners can reveal enormous inefficiencies in any organisation. Reworks can be expensive but they can either result in a reduced cost base or create the space to invest in growth.

4. Winners have strong partnerships
Truly successful technology teams build deep and enduring partnerships with their supplier base. KPIs must be appropriate and measured, contracts and commercials must be fit for purpose. Our research shows that only 60% of IT leaders believe banks undertake regular reviews of IT and telecoms supplier contracts, leaving a substantial proportion un-reviewed.

5. Build the right team
Where there are skills gaps it’s important to consider all of the options in addressing the problem. There are critical skills shortages in the market due to a reliance on legacy technology and the perceived attractiveness of alternative employers. The situation is unlikely to become any easier, but incremental gains can be achieved through a review of the overall talent management strategy, a refresh of the organisational design.
 
Peru Consulting commissioned independent research with more than 100 Senior Technology Leaders in Banking that described themselves as Owner, C-Level Executive, Director or Senior Management. Separate independent research was also conducted with more than 1,000 consumers what makes them loyal to their banks and what would make them switch to another provider. Individual experts were interviewed by members of the Peru Team to provide additional insights into key areas of the research.