29 July 2021 | By Viktor Todorov 
In the early 2000s, the global boom of internet, connected millions of businesses and people in a new way, triggering the rise of internet banking services and e-banking.
The second huge transformation in the banking sector came just 10 years later with the widespread use of smartphones. This required banks to adjust and offer more digital services.
In this changing landscape, incumbent banks have faced pressure to continuously upgrade their digital capabilities to cater for evolving customer expectations. Nowadays, most of the traditional banks are using multi-channel approach to serve their customers including mobile apps, websites and AI assistants.
This new reality, open the market for a new breed of banks called Digital Challenger Banks (DBCs). They come in a number of formats, and provide a full bank service or bank-like service depending on their operating structure and banking licenses.
There are 249 digital banking players globally (as of end of 2020), but of those, just 13 have been successful in generating a positive bottom line. Of those 13 successful players, ten are based in the Asia Pacific (APAC) region.
The problems that DBCs and legacy banks face are somehow opposite:
Research commissioned by Contis shows that 68 percent of consumers want access to new digital services, yet challenger banks enjoy just half the trust of the established high-street banks. Demand is there, but trust remains low.
In contrast, although legacy providers are trusted and know how to deal with large scale problems, they are not agile and can not innovate quickly. Also, they have old legacy technology which is hard to be replaced.
So what is the future of the legacy banks?
According to Gartner, Inc. By 2030, 80 percent of heritage financial services firms will go out of business, become commoditised or exist only formally but not competing effectively.
I don’t believe this to be true. It is fair to expect that fin-tech companies and other new players will keep gaining more market share. At the same time, traditional banks can benefit form their infrastructure, network and reputation. One possible outcome is that they will start acquiring successful fin-tech companies to diversify their offering without replacing existing infrastructure. I expect more digital integrations in the next few years.
However, one thing is clear – Traditional Banks must modernise their legacy banking systems in order to compete in this evolving marketplace.
Sources:
Four out of five legacy banks could be gone by 2030
Three key steps to modernise legacy banking systems
Atos: How Legacy Banks Can Thrive in a Digital World
Challenger banks and legacy banks face opposite problems. Is there a solution?
Emerging Challengers and Incumbent Operators Battle for Asia Pacific’s Digital Banking Opportunity – White Paper by Jungkiu Choi, Yashraj Erande, Yang Yu and Camille Jasmine Aquino