1、1Economist Impact 2022As payments,technology and e-commerce disrupters cut banks out of the equation with embedded finance solutions,banks must harness emerging technologies to create their own digital ecosystems and remain at the centre of the banking universe.New technologies will have the biggest

2、 impact on banks in the next five yearsmore than changing customer demand and evolving regulation.Generative artificial intelligence(AI)in particular is expected to impact banking,according to 75%of respondents to a survey conducted by Economist Impact.More than 70%of survey respondents see unlockin

3、g value from AI as a key differentiator between winners and losers.Collaboration with fintechs or other technology providers is key to access expertise in emerging technologies as open-banking initiatives multiply across the world.Banks see their business model evolving in the next 12-24 months,offe

4、ring banking-as-a-service to brands and fintechs,and enabling embedded finance within their own products and services79%of survey respondents agree that banking will become“embedded”in consumers lives and businesses value chains.Nearly two-in-five banks(38%)foresee acting as a true digital ecosystem

5、 offering own and third-party banking and non-banking products and services.Improving personalised and embedded customer experiences remains a top strategic priority.Three-quarters of survey respondents agree that banks will seek to differentiate on customer experience rather than products in the ne

6、xt five years.Customer centricity is driving banks to offer more embedded environment,social and governance(ESG)propositions to their customers(73%),as well as providing capital to environmentally friendly projects(74%).With the focus on lowering their carbon footprint,as well as the increasing use

7、of data-intensive AI,banks are inevitably moving to the public cloud51%of respondents agree that banks will no longer own any private data centres in the next five years after moving to the public cloud.Sponsored byByte-sized banking:Can banks create a true ecosystem with embedded finance?Economist

8、Impact 2023Byte-sized banking:Can banks create a true ecosystem with embedded finance?2Rise of the machinesIn the last iteration of Economist Impacts global banking survey,conducted in 2021,banks were facing a perfect storm as the pandemic accelerated consumer use of online banking,hastening the clo

9、sure of bank branches and seemingly giving a strong advantage to digital-first competitors.With fintech start-ups,payment players,super-app platforms and tech giants continuing to take market share as they gained the ability to offer more traditional banking services,incumbent banks were compelled t

10、o reassess their priorities and business models.It is no surprise,then,that new technologies are expected to have the biggest impact on banks in the next five years,according to 63%of respondents in this years surve ya finding that has been consistent since 2019(see Figure 1).“When the young generat

11、ions,who were born with phones in their hands,become clients,they will have much more of a focus on the technology,”says Schuyler Weiss,CEO of Alpian,a Swiss neobank(that is,a bank that operates exclusively online,without bricks-and-mortar branches).“If you do not have modern technology,they will no

12、t bank with you,it doesnt matter how long youve been around.”New technologies are expected to have the biggest impact on banks in the next five years,according to 63%of respondents in this years survey.ABOUT THIS RESEARCHEconomist Impact conducted a study,commissioned by Temenos,to understand emergi

13、ng trends in the banking industry.This report presents insights from a global survey of 300 executives in retail,commercial and private banking spanning Europe(25%),North America(23%),Asia Pacific(18%),Middle East and Africa(17%),and Latin America(17%).Respondents perform various job functions,such

14、as IT,customer service,finance,marketing and sales,strategy and business development,and general management,among others.Half of the respondents were C-suite executives.This is the seventh year that Economist Impact has conducted this survey.The research also included interviews with industry practi

15、tioners to gain further insights.Economist Impact 2023Byte-sized banking:Can banks create a true ecosystem with embedded finance?3In the spotlight this year is generative AI.While AI and machine learning(ML)have been in existence for decades,the launch of Chat GPT late last year demonstrated the pot

16、ential of AI to transform everyday tasks and spurred companies to find the best ways to leverage it.Indeed,75%of respondents to this years survey believe that the banking sector will be significantly impacted by generative AI and 71%agree that unlocking value from AI will be the key differentiator b

17、etween winners and losers.The use cases of AI in banking are plenty,from the front-end,such as greater customer personalisation and digital marketing,to the back-end,such as customer fraud detection,product development and regulatory compliance(see Figure 2).In response,many big banks are beefing up

18、 their innovation teams with AI 1 https:/ Chase alone advertised 3,651 AI-related roles between February and April 2023,and 30%of job ads from European banks during that time period made reference to AI.1For DBS,a bank in Singapore,one potential application of AI is in supporting employees to delive

19、r more personalised services to clients.Nimish Panchmatia,chief data and transformation officer,explains:“In the coming months we are looking at rolling out a solution using generative AI for our relationship managers,which will curate investment research for our clients.”Alpian is also considering

20、how AI can support its wealth-management offerings.“We are looking at how we can make smart recommendations to our clients about what they do with their wealth using AI-driven investment strategies,”says Mr Weiss.Figure 1:Which trends do you believe will have the biggest impact on banks in the next

21、five years?Source:Economist Impact survey.New technologies(e.g.,generative AI,blockchain,quantum computing,cloud computing,VR/AR,APIs,IoT,biometrics etc.)Changing customer behaviour and demands for new banking products and servicesRegulation on digital and cloud technologyChanging competitive enviro

22、nmentChanging geopolitical,macroeconomic,or public health environment010203040506070201920202021202342%28%27%26%N/A65%29%20%17%38%63%34%14%23%25%66%24%19%15%42%Economist Impact 2023Byte-sized banking:Can banks create a true ecosystem with embedded finance?4So far,the most common customer-facing AI t

23、ools have been chatbots.Bank of Americas virtual financial assistant,Erica,has been used by more than 37m customers in over 1.5bn interactions between 2018 and 2023.2 Research has found that banking chatbots,while offering personalised experience to customers,will also save banks US$7.3bn in operati

24、onal costs in 2023.3Back-end solutions tend to focus on security.Denmarks largest bank,Danske Bank,developed an AI tool in 2017 that increased the banks fraud detection capability by 50%and reduced false positives by 60%as of 2023.JPMorgan Chase has developed an early-warning system using AI and ML

25、techniques to detect malware,trojans and phishing campaigns.42 https:/ https:/ https:/ of New York(BNY)Mellon sees value in using AI for better data management.“We have a machine-learning tool that improves our client data by ensuring that we dont have any duplicates and that we have complete and ac

26、curate data,”says Linda Powell,deputy chief data officer at the bank.“Then my human time is spent on analysing and resolving problems,rather than trying to identify potential issues.”This ML tool is the result of a partnership between BNY Mellon and software company Quantexa.“Were committed to provi

27、ding the best possible services to our clients,so partnering with outside firms to gain access to these technologies is valuable and important,”says Ms Powell.If you cant beat them,join themCollaboration with fintech firms and other technology providers is seen as key to accessing expertise in emerg

28、ing technologies.Steve Dunn,head of innovation and fintech at Sumitomo Mitsui Banking Corporation,explains:“The way we see it is there are a lot of smarts out there,so how do we leverage that?How do we tap into technology we need,but we just dont have access to?We see value in partnering with fintec

29、hs to accelerate our own go-to-market capabilities.Its a key element of our innovation strategy.”Figure 2:What do you believe will be the most valuable use of artificial intelligence for banks in the next 1-3 years?Source:Economist Impact survey.0%5%10%15%20%25%Credit scoringBack ofce productivity o

30、ptimisationCustomer profiling/micro-segmentationOn-boarding customers more easilyVoice recognition bankingRegulatory complianceProduct developmentCustomer fraud detectionDigital marketingImproving the user experience through greater customer personalisation capabilities21%19%13%10%9%8%7%7%4%2%Econom

31、ist Impact 2023Byte-sized banking:Can banks create a true ecosystem with embedded finance?5Since the last survey in 2021,deepening engagement with fintechs has become a much more important innovation strategy for banks.Compared to 2021,a much higher share of banking executives now cite investing in

32、fintech start-ups and participating in sandboxes with fintechs and other technology providers to test new propositions as their top innovation strategy(see Figure 3).This is a necessity,partly as open-banking initiatives multiply around the world.While Europe was the pioneer,kickstarting the open ba

33、nking revolution in 2015 with the Payment Services Directive,a piece of EU legislation designed to increase competition in the payments industry,Asia-Pacific is close behind in terms of the number of 5 https:/ https:/ https:/ https:/ platforms and products.In Asia,the uptick in open banking is being

34、 driven by market forces,not regulation,with consumers more willing to share their data.5A rapidly changing macroeconomic environment is also enabling banks investments in fintechs.After years of declining profits,bank profitability reached a 14-year high in 2022,supported by rising interest rates i

35、n 2023.6 Meanwhile,their challengers are facing a funding crunch.Venture capital funding of fintech start-ups plunged globally by 49%year-on-year in the first half of 2023,to US$23bn.7 Investment in fintechs in the first half of 2023 shows consolidation around established firms with dominant market

36、positions,such as Stripes US$6.87bn round.8Figure 3:What is your banks innovation strategy?Source:Economist Impact survey.0%5%10%15%20%25%30%35%40%45%Invest in fintech start-upsParticipate in sandboxes to test new propositionsOfer open bank hub initiativesCreate in-house accelerator/incubator progra

37、mmesAcquire existing fintechs2021202321%13%26%20%30%31%32%24%41%25%Economist Impact 2023Byte-sized banking:Can banks create a true ecosystem with embedded finance?6UK-based Wise established its position in international payments and is now offering additional products like multi-currency bank accoun

38、ts to maintain and build its direct client base and leveraging its infrastructure to provide payments solutions for banks.“We spent 12 years building our international payments technology and infrastructure,”says Roisin Levine,head of UK and Europe partnerships at Wise.“We have 50-plus licences arou

39、nd the world,over 100 relationships with banks,800-plus engineers.So how can we work with more traditional players,and potentially other fintechs,to be their go-to for this solution?Our objective is not to do everything,but to do what we do very well,and to allow partners to leverage what weve built

40、.”Against this backdrop,banking executives we surveyed foresee relationships within the industry evolving over the next one to three years.As many as 44%of survey respondents believe that banks will acquire majority stakes in fintechs and 32%believe that there will be market consolidation among chal

41、lenger banks in the next one to three years.These were lower in 2021,at 41%and 23%respectively.While banks deepen their collaboration with fintechs to increase access to technology and a suite of financial solutions,they are in fierce competition with non-traditional entrants to own the customer rel

42、ationship.They still see payment providers,such as Paypal and Alipay,as their biggest competitors in the next five years;however,the proportion of respondents believing this has declined over the past few years(see Figure 4)perhaps as banks choose instead to partner with players like Wise.Meanwhile,

43、banks are increasingly worried about competition from technology and e-commerce disruptors,cited by 40%,compared with 34%in 2020.This may be because customers prefer one-stop-shop solutions when purchasing onlinethe new battleground between banks and other non-traditional entrants.44%of survey respo

44、ndents believe that banks will acquire majority stakes in fintechs.Figure 4:Which non-traditional entrants to the banking industry will be your companys biggest competitors in the next five years?Source:Economist Impact survey.0%10%20%30%40%50%Payment players (e.g.,PayPal,Alipay,Apple Pay,Square,Rip

45、ple,WorldPay,Visa,Faster Payments etc.)Technology and e-commerce disruptors(e.g.,Google,Facebook,Microsoft etc.)Peer-to-peer lenders and alternative finance providersNeo-banks(e.g.,Varo,Starling,N.,Fidor,Five Degrees,Monzo,Tide etc.)Robo-advisers/automated wealth management servicesNon-financial ser

46、vice firms 20202021202316%12%13%23%15%14%26%21%16%40%36%34%41%45%50%25%20%20%Economist Impact 2023Byte-sized banking:Can banks create a true ecosystem with embedded finance?7Embedded finance:Masters of the digital universe9 https:/ https:/ dual tides of technological innovation and evolving customer

47、 needs have given rise to embedded financethe integration of financial services or tools within the products or services of a non-financial organisation without the need to redirect to traditional financial institutions.It includes payment,lending,investment and insurance solutions,keeping the custo

48、mer at the centre.Shopify,a Canadian e-commerce company,processed gross payments of US$14bn in Q3 2020 in partnership with Stripe,a US-based fintech.Similarly,Uber handles more than 70%of driver pay-outs using Instant Pay.9 Buy-now-pay-later products,such as Afterpay,Klarna and Paypal,offer loans at

49、 the point of sale and are exploding in popularity across multiple e-commerce platforms.Research estimates that the embedded finance market will reach a global value of US$7tn in the next decade.10In this model,banks are relegated to acting as a utility at the back end or are replaced by fintechs su

50、ch as Stripe.But they can stay relevant and scale by partnering with platforms for“banking as a service”(BaaS)offerings,says Mr Panchmatia of DBS.For example,DBS is working with large companies in China,“where we provide end-to-end solutions,not just for the platform,but for the merchants on the pla

51、tform,”he says.One-in-five banks in our survey expect their business model to evolve in the coming years to offer BaaS to brands and fintechs(see Figure 5).However,banks do not want to be cut out of the equation entirely,or to lose more ground in terms of the consumer-facing experience.To keep this

52、direct connection with the consumer,banks are recognising that they must become true digital ecosystems.Survey respondents say that this is the top way that their business models will evolve over the next 12-24 months(see Figure 5),and this will support their top strategic priority for the next five

53、 years of improving personalised and embedded customer experience and engagement(30%)(see Figure 6).Figure 5:What is the primary way in which you see your current business model evolving over the next 12-24 months?Source:Economist Impact survey.0%5%10%15%20%25%30%35%40%Acting as a true digital ecosy

54、stemMaintaining own product oferings and becoming an aggregator of third-party banking and/or non-banking products Providing banking as a service oferings to brands and fintechsDeveloping a niche proposition for own customers17%20%25%38%Economist Impact 2023Byte-sized banking:Can banks create a true

55、 ecosystem with embedded finance?8An ecosystem of their own and third-party financial products is the first step.To achieve this,about one-in-five survey respondents say that they are prioritising building a banking super-app or ecosystem.The next step is using technology and data to embed themselve

56、s deeper into customers lives by providing services in real time,building cross-industrial platforms and turning formerly linear value chains into customer-centric innovative delivery models.11By becoming consumers one-stop-shop for products and services,both financial and non-financial ecosystem ow

57、ners gain access to a treasure trove of data.This puts them in an ideal position to use AI,ML and other technology to better understand consumers and more effectively deliver personalised experiences,products and services(the most valuable use of AI,see Figure 1).One of the most prominent examples o

58、f this is China-based WeBank,part of the Tencent conglomerate better known as WeChat.Using data from users shopping transactions and 11 https:/ https:/ World Bank,https:/data.worldbank.org/indicator/FB.AST.NPER.ZS?locations=CNsocial interactions,it offers credit in seconds to those without tradition

59、al credit scores and has maintained non-performing loan ratios lower than those of traditional banks in China,at just 1.2%compared with 1.7%in 2021.12,13In the next five years,this shift is expected to create a world in which banks seek to differentiate on customer experience rather than products(sa

60、y 75%of respondents)and become embedded in consumers lives and businesses value chains(79%).Source:Economist Impact survey.Figure 6:What are the top strategic priorities for your company in the next five years?0%5%10%15%20%25%30%Improving personalised and embedded customer experience and engagementI

61、mproving productivityImproving product agilityMigrating client usage to digital from physical channelsBuilding a banking superapp or ecosystemCutting costs or improving marginsEnabling embedded financeMigrating to public cloud services/SaaSTalent acquisition and retentionEmbedding ESG across across

62、the business9%9%15%18%18%20%24%26%28%30%79%of survey respondents expect banking to become embedded in customers lives and businesses value chains in the next five years.Economist Impact 2023Byte-sized banking:Can banks create a true ecosystem with embedded finance?9Digital clouds could help clear sk

63、ies14 ftp:/ ecosystems enable banks to play a larger part in consumers lives,what they stand for and how they operate will matter more.Companies across sectors are increasingly expected by customers and employees to operate according to clear values,and there is growing public attention directed tow

64、ards the important role that banks can play in climate action.Survey respondents recognise this,with evolving customer behaviour and demands for new banking products and services cited as the second biggest trend to affect the industry,after technology(34%).This is translating into banks offering mo

65、re ESG and sustainable banking propositions to both retail and enterprise customers in the next five years(73%),as well as providing capital to environmentally friendly projects(74%)and taking capital away from carbon-intensive industries(64%).More than one-third(37%)of banks report investing in low

66、-carbon technologies and start-ups working on decarbonisation.As part of their own sustainability initiatives,31%are implementing strategies to reduce emissions in their operations internally as well as their supply chain.The shift of applications to the cloud is a part of this drive,as public cloud

67、 storage(particularly those platforms that run on renewable energy)typically has lower carbon emissions than private data centres.As use of data-intensive technologies such as AI grows,banks will need to find ways to store and process data in a more energy-efficient manner.Data centres are expected

68、to consume 13%of the worlds energy by 2030,which translates to 6%of the worlds carbon footprint.For information-intensive companies,data centres can be half of their corporate carbon footprint.14Source:Economist Impact survey.Figure 7:What type of applications do you believe banks will prioritise in

69、 moving to the cloud over the next 12-24 months?0%10%20%30%40%50%14%21%26%34%34%48%Digital channelsCore banking(international)PaymentsCore banking(domestic)Peripheral systems(e.g.,financial crime,regulatory reporting)Customer relationship managementEconomist Impact 2023Byte-sized banking:Can banks c

70、reate a true ecosystem with embedded finance?10More than half(51%)of survey respondents agree that banks will no longer own any data centres because they will have moved to public cloud in the next five years.Over two-thirds(70%)of banks agree that a multi-cloud strategy will become a regulatory pre

71、-requisite in the next five years.As part of the move,banks are prioritising digital channels(48%),international core banking services(34%)and payments(34%)in their migration to the cloud(see Figure 7).“The future is going to be cloud driven,”says Mr Panchmatia.“We have gone from 90%of our applicati

72、ons on old technology,mainframe applications about eight years ago to now 95%cloud-enabled.Where the risk tolerance is acceptable,then we do a lot of investment in terms of moving into the public cloud;where its not acceptable,then weve got our internal private cloud.”A new banking ecosystemThe perf

73、ect storm banks faced two years ago continues.The challenge from fintechs and tech companies,as well as consumers persistently growing expectations for better,more personalised products and services,are forcing banks to assess the role that they play and how they must adapt.The trend of embedded fin

74、ance is encouraging banks to drop any reservations that they may have had about opening up and becoming true ecosystems.The need to tap expertise in emerging tech like AI is similarly boosting the case for greater collaboration with fintechs and technology companies.And environmental concerns have j

75、oined the list of reasonsalongside efficiency and securitywhy banks are accelerating the shift to the cloud.As they become more and more embedded in consumers lives,banks have the opportunity to not only deliver more for their customers and support the shift to net zero,but to also secure their plac

76、e at the centre of the ecosystem.More than half(51%)of survey respondents agree that banks will no longer own any data centres because they will have moved to public cloud in the next five years.Economist Impact 2023Byte-sized banking:Can banks create a true ecosystem with embedded finance?11While e

77、very effort has been taken to verify the accuracy of this information,Economist Impact cannot accept any responsibility or liability for reliance by any person on this report or any of the information,opinions or conclusions set out in this report.The findings and views expressed in the report do no

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