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US Banks Turn to Technology Providers to Transform Business, Compete Against FinTechs

US Banks Turn to Technology Providers to Transform Business, Compete Against FinTechs

ISG Provider Lens report sees traditional banks facing competition from digital financial services providers and increasing customer demand for digital services

The US banking industry has accelerated its digital transformation over the past year in response to the COVID-19 pandemic, and banks are looking to technology service providers to help them navigate the new business environment, according to a new report published by Information Services Group, a leading global technology research and advisory firm.

“Traditional banks need to use technology to compete with neo-banks or digital-only banks that are offering higher interest rates, transparent fee structures and flexible underwriting policies.”

The 2021 ISG Provider Lens™ Digital Banking Services Report for the U.S. finds banks embracing digital services to enhance user experiences and to compete with the emerging FinTech industry. At the same time, the U.S. banking industry is seeing a growth in profits due to increased consumer savings and narrowing credit losses.

Banks are adoption emerging technologies such as mobile banking, artificial intelligence, blockchain, contactless payments, open banking and cloud computing to transform their front- and back-office operations, the report says.

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“We’re confident that technology spending by the banking industry will continue in areas such as loans, wealth management, real-time payments and banking from anywhere,” said Owen Wheatley, lead partner for banking and financial services with ISG. “Traditional banks need to use technology to compete with neo-banks or digital-only banks that are offering higher interest rates, transparent fee structures and flexible underwriting policies.”

The report sees a changing mindset from both banking customers and industry executives, with a shift from branch banking to anywhere banking. Branch networks are undergoing a drastic transformation, redesigned to reflect persona-based hyper-personalization. There is an immediate demand for front-end automation emphasizing enhanced user experience, with interactive bots taking center stage.

Digital banking transformations can take a long time and demand considerable investments, the report adds, and banks should consider future needs, scalability and agility when engaging with digital banking providers. Digital banking transformation is not as easy as switching off the old system and switching on the new system, the report says, and hurdles to core banking modernization also include the inherent legacy complexity associated with data migration and integration and regulatory compliance.

While platform vendors and the banks have a thorough knowledge of the functional aspects of the banking system, they often lack the underlying technology expertise to undertake the transformation, the report says. Banks tend to rely on an implementation partner’s ability to analyze existing systems and create a roadmap for the future state of the underlying system.

Service providers examined in the report have invested in several new capabilities, including a combination of functional and technical expertise, allowing them to customize components for banking customers, the report says.

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Systems integrators are becoming well versed in needed technologies, giving them the edge in implementations, the report adds. In some cases, systems integrators partner with multiple core software providers, enabling them to gain experience in handling different systems. This allows them to serve in an advisory role, enabling smoother transformations for banks.

The 2021 ISG Provider Lens™ Digital Banking Services Report for the U.S. evaluates the capabilities of 28 providers across four quadrants: Core Modernization and Integration Services; Banking Governance, Risk and Compliance Services; Transformational and Digital Banking Services, and Payment and Card Processing services.

The report names Accenture, Cognizant, Infosys, TCS and Wipro as Leaders in all four quadrants and Capgemini and HCL as Leaders in three quadrants. Atos and Deloitte are named as Leaders in two quadrants, and DXC Technology, EY, FIS, Fiserv, IBM and PwC are named as Leaders in one.

In addition, LTI was named a Rising Star—a company with a “promising portfolio” and “high future potential” by ISG’s definition—in all four quadrants.

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 [To share your insights with us, please write to sghosh@martechseries.com]

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