THE DIGITAL BANKING ECOSYSTEM: These are the key players, biggest shifts, and trends driving short- and long-term growth in one of the world's largest industries

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Summary List Placement

The banking industry is in the grips of an identity crisis. Leaders of the world’s largest banks — such as Citi, BBVA, and Goldman Sachs — have begun describing themselves as technology companies with banking licenses.

However, this description is still aspirational. Executing the vision will require billions of dollars in investments, the restructuring of teams, a reimagining of the entire banking technology stack, and the adoption of a far more customer-centric business view. 

The stakes of failing to transform are high: Accenture projects that 35% of all bank revenues could be at risk from more tech-savvy competitors like fintechs as soon as 2020 for incumbents that fail to up their game.

As a result, a wave of digital transformation is now sweeping the banking industry, as incumbents shore up against consumer demand and competitive pressures. Major banks have already announced multibillion-dollar, multiyear digitization projects: By 2021, global banks’ IT budgets will surge to $297 billion, up 14% from $261 billion in 2018, according to Celent.

Many incumbent banks are opting to decrease their branch budgets and networks and reinvest their resources in digital channels such as mobile instead to cater to current consumer preferences, and are enlisting the help of tech-savvy software vendors to modernize their tech stacks from top to bottom as part of this process.

In the Digital Banking Ecosystem report, Business Insider Intelligence explores the incumbent banking landscape as a whole, and the third parties banks are calling on to help their transition to digital. We then take a closer look at the three biggest drivers for incumbent banks’ digitization push: digital-native competitors like neobanks and Big Tech companies; changing consumer behaviors and banking channel preferences; and a growing array of cybersecurity threats.

Lastly, we examine what incumbents are already doing today to transform themselves into digital-first organizations to compete in a customer-centric, data-driven global economy, and how they are learning to meaningfully measure the progress of their transformations. 

The companies mentioned in this report include: Acronis, Amazon, Ant Financial, Apple, Ario, Banco Galicia, Bancorp, Bank of America, Bank of England, Barclays US Consumer Bank, BBVA, BNP Paribas, Caixa Geral de Depositos, CaixaBank, Capital One, China Construction Bank, Citigroup, Citizens Bank, Compliance.ai, CSI, Dave, Detroit Fintech Bay, Deutsche Bank, Diasoft, Emirates NBD Bank, Finastra, Finn AI, Finxact, First Direct, FIS, Fiserv, Flagstar Bank, Forcepoint, ForSee, Forward Networks, Geezeo, Gemalto, Goldman Sachs, Google, Grab, Hello Bank, Help Systems, HotJar, HSBC, IBM, ICBC, Infosys, ING, ING Direct, Intesa Sanpaolo, Jack Henry, JPMorgan Chase, Kenna Security, Lloyds Bank, Lyft, Midwest Bank, Mission Bank, Monzo, N26, Nationwide, NatWest, nCino, ObserveIT, OnDeck, Openbank, Osano, Personetics, PNC, RBS, Reciprocity Labs, Saga, Santander, Sberbank, Square, Starling Bank, Strands, Tanium, Temenos, Tencent, Thomson Reuters, Thought Machine, Tink, TSB, Uber, United Income, US Bank, Wells Fargo, Zelle, and Zopa. 

Here are some of the key takeaways from the report:

  • Incumbent banks are intensifying their digitization efforts in the face of changing consumer demands and growing competitive pressures.
    • The number of US consumers considering switching banks in the next 12 months increased by 86% from a year before, from 6.9 million to 11.9 million, per Resonate, with consumers citing the need for better digital banking services and more personalized products and tools as major motivators.
    • Meanwhile, tech giants like Google and Amazon are poised to grab up to 50% of the $1.35 trillion in US financial services revenue from incumbent banks, per McKinsey, leveraging their tech expertise to lure away customers.
  • Legacy channel usage is steadily dwindling, while digital channel usage is firmly on the rise. This turn to digital is being accelerated by younger, tech-savvy generations like millennials and Gen Zers quickly becoming banks’ largest addressable market.
    • Once the most widely used banking channel in the US, branch use will drop at a compound annual growth rate (CAGR) of -2.01% between 2019 and 2024, per Business Insider Intelligence projections.
    • Meanwhile, mobile banking, the least-used banking channel in 2008, is expected to grow at a CAGR of 2.83% between 2019 and 2024, the highest among all channels. 
  • To digitally transform, banks need to join forces with partners, enemies, and frenemies alike. Vendors will be key to the modernization of banks’ IT, with specialists catering to each layer: 81% of banking executives surveyed by Finextra and the Euro Banking Association cited working with partners as the best strategy for achieving digital transformation goals. Banks’ growing IT budgets reflect their changing priorities: By 2021, global banks’ IT budgets will surge to $297 billion, up 14% from $261 billion in 2018, according to Celent.
  • Banks’ digital transformations are already well under way, and incumbents are making massive changes to the way they operate and plan for the future to compete in a digital economy. They’re doing this by embracing digital-ready innovation models; adopting new business models like open and direct banking; and reorienting their tech stacks around the digital customer experience.

In full, the report:

  • Outlines the incumbent banking landscape and its components, and the structure of the banking tech stack and the vendors supplying each of its layers.
  • Explains the biggest drivers behind banks’ digital transformations, especially the rise of tech-savvy competitors, shifts in consumer behaviors, and a growing number of cybersecurity threats.
  • Highlights the steps banks are already taking to turn themselves into digital-first, data-driven, and customer-centric organizations. 
  • Evaluates the progress incumbents have made towards digitization, and how deeply they’ve embedded themselves in the emerging cross-industry digital banking ecosystem.

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Related Articles

Narmi, a fintech that helps small banks up their digital game, is looking to double headcount this year after nabbing $20 million from a backer of Salesforce and Plaid

Summary List PlacementA fintech founded by two former investment bankers has big plans for 2021 — and they all revolve around helping small banks upgrade their digital offerings. 
While major players like Bank of America and JPMorgan Chase hold an outsized share of deposits across banks in the US, nearly 50% of market share is held by banks outside the nation’s 15 largest – including more than 4,500 community banks spread across the country, according to FDIC data.
These are also the financial institutions that, even before the COVID-19 pandemic began nearly a year ago, have been most hard-pressed to develop digital banking services – from remote check deposits to account openings – that can be costly to develop and require significant, long-term investment.
Narmi is a startup that’s looking to bridge that divide. The fintech offers cloud-based technology to regional and community banks that includes digital banking and account opening tools for consumers and a digital business banking service for small businesses. 
On Tuesday, New York-based Narmi announced that it had raised $20.4 million in a Series A fundraising round that was led by New Enterprise Associates, or NEA, a venture capital firm with more than $24 billion in assets that’s also invested in companies like Salesforce and Plaid. Executives from Plaid and Brex also invested in the round although their names were not disclosed.
See more: Smaller banks have been forced to evolve in the wake of the pandemic. Insiders explain how fintechs are playing a key role in the future plans of regional and community banks.
“We do think we have a very strong differentiation strategy,” Nikhil Lakhanpal, Narmi’s co-founder, told Insider, adding that the capital raise will allow Narmi to execute its key focuses as a company in 2021: developing more business banking digital tools, enhancing the user experience of regional and community bank customers, and doubling down on their open-source strategy (Narmi’s API code is publicly available online.)
“It’s a massive catalyst to our company in so many ways,” Lakhanpal continued.
Firsthand experience
Both Lakhanpal and Chris Griffin, Narmi’s other co-founder, experienced the tech challenges smaller banks can face when trying to reach customers online. While students at Georgetown, they led the Georgetown University Alumni and Student Federal Credit Union, with Lakhanpal as CEO and Griffin as CIO. 
“We ran this financial institution and we really just wanted to give our customers, our end users, a really awesome digital experience, like nothing else mattered. That was critical. And we just couldn’t do it. We looked at the vendor landscape, it’s really crowded with legacy tech. You’re paying a premium, not for a premium product, but for a larger company,” Lakhanpal said. 
After stints in the investment banking world at Citibank and Barclays, respectively, Lakhanpal and Griffin launched Narmi in 2016. The startup counts Radius Bank, the Boston-based online community bank that was acquired by LendingClub for $185 million in February 2020, and Berkshire Bank among its customers. Lakhanpal said the company doubled headcount in 2020 and is planning on doing the same this year. 
Read more: Plaid’s breakout stars: These are the 14 people heading up key projects at the $5.3 billion fintech looking to make financial data more accessible
A big backer in NEA
NEA, meanwhile, brings both capital and experience to the table, something that Lakhanpal said was particularly valuable given the venture firm’s experience in growing companies at scale.
As for NEA’s part, it has a veteran of both the e-commerce and banking world in Liz Landsman, who helped close the round. Landsman previously headed the internet, digital, and mobile teams for Citi’s North America consumer banking business, was the chief marketing officer of E-trade, and served as the president of Jet.com, the e-commerce startup that was acquired by Walmart for $3.3 billion in 2016 (NEA was also an investor in the site.)
“We were very excited when we met these guys, both because we thought they were exactly the right team, we thought the platform they built was thoughtful and technically strong, but also coming out of those unique insights of having lived on the other side of the table,” Landsman told Insider.SEE ALSO: Citi just announced a leadership reshuffle in its consumer bank as new head Anand Selva takes the reins, and the promotions point to a big digital push
SEE ALSO: Digital-lending startup Blend just nabbed $300 million from backers including Coatue and Tiger and is now valued at more than $3 billion. Here’s how it’s disrupting consumer banking.
SEE ALSO: TPG Growth and Alphabet’s CapitalG just backed a $1.9 billion startup that’s helping banks and fintechs build interfaces that are as lovable as big consumer brands
Join the conversation about this story » NOW WATCH: What would happen if you jumped off the International Space Station

Digital-lending startup Blend just nabbed $300 million from backers including Coatue and Tiger and is now valued at more than $3 billion. Here's how it's disrupting consumer banking.

Summary List PlacementWhen it comes to consumer banking, the offerings and services involved run the gamut from the most basic of checking accounts to highly-personalized home loans and specialty vehicle auto loans. Accessing them all in one place via a seamless, online user experience, however, isn’t always easy.
That’s one of the new focuses of digital-lending startup Blend.
On Wednesday, San Francisco-based Blend announced a new fundraising round that brought the company’s valuation to $3.3 billion, a near doubling of its valuation since it last raised money five months ago in August.
See more: Machine-learning powered mortgage startup Blend overshot its expectations with a $130 million fundraise. Their CFO explains how they pulled it off.
Blend works with traditional lenders — such as Wells Fargo, US Bank, and Navy Federal Credit Union — to streamline their process of offering and managing mortgages and loans via digital channels. 
The $300 million Series G round was led by Coatue Management and Tiger Global, whose past experience investing in software companies like Hinge Health and Rapyd appealed to Blend’s founder and CEO, Nima Ghamsari.
Previous investors include Canapi, who joined the company’s Series F round in August. 
“We are a software company and so I wanted to get people who understood software. This was just the right round. It was a right time for somebody like that in the late enough stage,” Ghamsari told Insider. 
“We’re excited because they’re both very long-term oriented investors,” he added.
A common system
Ghamsari said that a key part of Blend’s growth since the startup was founded in 2012 has been the increasing success of digital strategies at fintechs and challenger banks, placing pressure on traditional banks and lending companies to upgrade their online experience.
The COVID-19 pandemic, meanwhile, has only accelerated the “digital transformation banks and lenders are undergoing,” he said.
Read more: Blend, a startup that’s building a ‘one tap’ mortgage-application tool, is now jumping into the auto-loan market
Ghamsari said that the new capital will go primarily towards deepening existing customer relationships and further building out Blend’s suite of new consumer-banking tools used by banks like BMO Harris. 
“These banks are built product line by product, even fintechs are built product line by product line. We’re going to build this common platform that can underlie all those products.”
Blend said it added more than 200 employees in 2020, a 60% increase, and facilitated $1.4 trillion in mortgages through its online tools.
Mortgage roots
Even as Blend looks to develop what it calls its new end-to-end service for digital banking, it’s also remained true to its lending roots by continuing to innovate the online mortgage process.
Blend’s lending technology, specifically, is currently used by Wells Fargo – one of Blend’s first partnerships in the mortgage space – and US Bank, among others.
“We’ve gone really, really deep in the home buying and home-financing process,” Ghamsari said, including developing a new offering that tries to improve on the “closing table” stage of taking out a mortgage — when the borrower must sign page after page of paperwork and meet with their lender, an escrow agent, a real estate agent, and lawyers.  
Ghamsari also added that he believes Blends benefits from operating in the relatively confined industry of consumer banking and lending.
“One of the benefits of being in a vertical is that you have a small number of customers. We have a small number of customers that we can spend a lot of time on, and I want to spend more time on them, not less, as we become more successful,” Ghamsari said.
Read more: Smaller banks have been forced to evolve in the wake of the pandemic. Insiders explain how fintechs are playing a key role in the future plans of regional and community banks.SEE ALSO: Julian Robertson’s Tiger Management is at the center of a quarter-trillion-dollar web linking billionaires, the Pharma Bro, and a ‘Big Short’ main character
SEE ALSO: Inside the rapid rise and fall of Coatue’s quant fund: How a 23-year-old Wharton wunderkind seized power, alienated employees, and blew a $350 million opportunity
SEE ALSO: Smaller banks have been forced to evolve in the wake of the pandemic. Insiders explain how fintechs are playing a key role in the future plans of regional and community banks.
Join the conversation about this story » NOW WATCH: Why these Gucci clothes are racist

The Future of Fintech: AI & Blockchain

Summary List PlacementSweeping global regulations, the growing penetration of digital devices, and a slew of investor interest are catapulting the fintech industry to new highs.
Of the many emerging technologies poised to transform financial services, two of the most promising and mature are artificial intelligence (AI) and blockchain.
74% of banking executives believe AI will transform their industry completely, and 46% of global financial services employees expect blockchain to improve transparency and data management.
In The Future of Fintech: AI & Blockchain slide deck, Business Insider Intelligence explores the opportunities and hurdles of adopting the two technologies within financial services.
This exclusive slide deck can be yours for FREE today.Join the conversation about this story »

Revolut sets sights on full UK banking license to solve the profitability conundrum

Summary List PlacementThe UK neobank applied for a full banking license in the UK, which would allow it to offer overdrafts, loans, and deposit accounts, Bloomberg reports. The license would also guarantee Revolut is covered by the UK’s Financial Services Compensation Scheme, which protects customer deposits of up to £85,000 ($109,000). Revolut currently has an emoney license in the UK, holding customers’ funds in big banks, and a banking license in the EU.

This mirrors a trend in the US, where fintechs are seeking more operational autonomy via banking licenses. In 2020, Varo became the first fully licensed US neobank. And later in the year, Square obtained FDIC insurance, and SoFi received preliminary Office of the Comptroller of the Currency (OCC) approval for a bank charter, pushing them both a step closer to bank charter eligibility.
A charter from the OCC enables nonbank financial services firms to expand their range of products and eliminate the costs of partnering with a sponsor bank to hold the deposits, which could be particularly beneficial as the pandemic has diminished the use of physical branches and digital banking penetration is on the rise.
Revolut is betting that the license will help it unlock primary account status, which is a key driver of profitability—but a license won’t be a silver bullet.

A license could give Revolut users the confidence to increase their deposits and conduct more financial activities through the neobank. To lessen their dependence on interchange fees, neobanks are looking to become the primary bank for their customers’ day-to-day expenses, rather than just being used for their debit cards. Revolut believes the deposit protection promised with a full banking license would encourage consumers to do just that: In a survey, the neobank found that 50% of its customers would be willing to deposit their salaries in Revolut accounts if their money was covered by a deposit guarantee scheme. And CEO Nikolay Storonsky told The Sunday Times that a license will allow it to “compete with large British banks because [Revolut] will be providing better services at better costs with deposit insurance.”
Still, Revolut can’t rely solely on a bank charter to spur users to primary account status, and it should continue incentivizing primary account status in other ways. The neobank isn’t guaranteed success with its license application, and the process could be lengthy. In the meantime, Revolut should look to prime users to integrate more of their financial lives with its platform. It has already taken steps toward this by enabling early wage access for users who link direct deposit to their Revolut account. And it has broadened the platform’s capabilities, including with a subscription management feature and a Pockets money management tool. Continuing to build out its offerings should help Revolut ensure that its UK customers are engaged with the platform and therefore more likely to make it their primary account in the future, regardless of licensing status.

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