Citi urges incumbents to grow their own challenger brands as new entrants shrink the market
Incumbent banks operating on ageing technology stacks are looking at a 30% revenue hit as new digital-first challengers enter the market, according to a report produced by Citibank.
The blue chip bank says that while incumbents diverted technology spend to meet regulatory and compliance challenges, they were blindsided by a new wave of competitors using technology and digital channels to deliver a better digital customer experience.
“Legacy banks often have data that is stuck in multiple silos supported by core banking technology that was literally built in the age of black and white television,” states Citi in a state-of-the-market report. “Manual intervention is high, which slows down operating speed, reduces flexibility, increases costs, and ultimately degrades efficiency and experience. Because a lot of digital technology isn’t part of core banking technology, challenger banks tend to be quicker at incorporating new products and processes onto their platforms and help to easily connect with third-party products — offering more choices to the end user.”
“We expect the digital disruption risk to start in payments and then widen to other financial products,” states the report. “The tipping point for incumbent banks is if their core businesses of savings and loans are impacted.”
“This involves legacy banks partnering with technology companies to create effective joint ventures as well as moving into more disruptive technology and business models to transform themselves into digital competitors,” the report concludes. “By creating their own Bank X, we believe legacy banks can transform themselves from slow moving caterpillars to agile butterflies.”