EBA欧洲银行-Report-on-the-impact-of-Fintech-on-incumbent-credit-institutions2720business-models_39页_987kb

EBA Report on the Impact of FinTech on Incumbent Credit Institutions' Business Models

Executive Summary

The EBA report outlines the growing influence of FinTech on the financial services industry, driven by technological advancements and changing customer expectations. Incumbent credit institutions are under pressure to adapt their business models due to factors such as customer demands for digital convenience, profitability concerns, increased competition, and regulatory changes. The report identifies two main trends in how incumbents are responding to FinTech: digital transformation and digital disruption. Digital transformation focuses on improving internal processes and efficiency, while digital disruption involves creating new market opportunities and business models. The EBA emphasizes the need for incumbents to adjust their governance, operating models, and strategies to remain competitive and sustainable in the evolving financial landscape.

Key Drivers of Financial Innovation

The EBA identifies four key drivers of financial innovation:

1. Customer expectations and behaviour
   Customers now demand easy access, fast service, and intuitive interfaces. There is an increasing reliance on mobile digital communication channels, and customer intelligence is becoming crucial for making better business decisions.

2. Profitability concerns
   Incumbent institutions are facing challenges due to the low interest rate environment and high levels of non-performing loans. They are seeking cost-saving opportunities and efficiency gains through digitalisation.

3. Increased competition
   New entrants, including FinTech start-ups and digital-based institutions, are challenging incumbents in payment and retail banking. The rise of platforms and the potential for customer data sharing under PSD2 is also a concern.

4. Regulatory changes
   The implementation of GDPR and PSD2 has introduced new requirements for data protection and customer consent. These regulations are reshaping how institutions operate and interact with customers.

Impact of FinTech on Incumbents' Business Lines

FinTech is most significantly impacting payment and settlement and retail banking business lines, leading to a decrease in revenues for incumbents. However, it also presents opportunities in commercial banking, trading and sales, and SME support through digital tools and automation. The EBA reports that while some incumbents are exploring new digital models, the majority are still in the early stages of adopting technologies such as big data, machine learning, and blockchain.

Key Players in the FinTech Ecosystem

The FinTech ecosystem includes the following key players:

• Incumbent institutions: Traditional banks providing a full range of financial services. Their level of digitalisation varies significantly.
• New digital-based institutions: Challenger banks or digital-only institutions with innovative models and no physical branches.
• Other FinTech firms: Start-ups offering technology-enabled financial solutions without banking licenses.
• Technology providers and ICT companies: Firms that provide software or hardware solutions, including BigTech companies with strong digital capabilities.

Trends and Approaches to Reacting to FinTech

The EBA identified two main approaches that incumbents are taking to respond to FinTech:

Digital Transformation

• Involves the transformation of internal processes to digitalise and optimise operations.
• Aims to reduce operating costs and enhance efficiency through automation and digital communication.
• Typically driven internally and includes changes across the organisation, from back-office operations to customer interfaces.
• Examples include automated financial crime detection and payment transaction optimisation.

Digital Disruption

• Involves the creation of new markets and business models using innovative technologies.
• May include the development of digital-only banks or new ways of customer interaction.
• Often requires significant organisational change and can lead to the replacement of traditional banking models.

Governance, Culture, and Talent

Incumbent institutions are increasingly aware of the need to adapt their governance structures, operating models, and corporate culture to support FinTech initiatives. They are also focusing on attracting and retaining talent and equipping their workforce with the necessary digital skills. The formal and slow governance structures of large complex institutions pose a particular challenge in implementing rapid technological changes.

Current Relationship with FinTech

Incumbents are engaging with FinTech in several ways:

• Partnering with FinTech firms: Collaboration is the most common form of interaction.
• Investing in FinTech firms: Strategic investments are preferred over direct acquisitions.
• Collaborating with other stakeholders: Includes working with regulators and technology providers.
• Developing FinTech solutions internally: Some institutions are building their own digital offerings.

Risk Factors for Business Model Sustainability

The main risks to the sustainability of incumbents' business models include:

• Adaptation capacity: The ability and speed to adapt to technological changes and customer expectations.
• Legacy ICT systems: These can hinder the implementation of new technologies and digital strategies.
• Execution capabilities: The effectiveness of implementing digital initiatives.
• Talent management: The challenge of attracting and retaining skilled personnel.
• Competition: From FinTech firms, new entrants, and technology providers.

Conclusion

The EBA concludes that FinTech is significantly influencing the financial services landscape, requiring incumbent institutions to rethink their strategies and business models. While the current focus is on digital transformation and disruption, the long-term sustainability of these models depends on the institutions' ability to adapt, innovate, and manage risks effectively. The EBA will continue to monitor the impact of FinTech and expand its analysis to include the broader FinTech ecosystem.