E Money Institutions
Today’s banking environment is very different from what it was even a decade ago. Traditional, longstanding financial institutions operate within a...
Want to Lead the Digital Banking Revolution in Europe?
Then It’s Time To Embrace SaaS.
How Mobile Adoption is changing Banking
Want to lead the digital banking revolution in Europe? Embrace SaaS.
Today’s banking environment is very different from what it was even a decade ago. Traditional, longstanding financial institutions operate within a landscape which now includes a rising class of online-first, challenger banks.
The new entrants are growing rapidly, fueled by the rise of digital and cloud infrastructure, and their ability to provide innovative online solutions that prioritize efficiency for their demanding clients. This trend points to a future where the profit margins of traditional banking models can be attacked by specialist digital Challengers, EMIs (Electronic Money Institutions), fintechs and big tech players, who are leveraging the help of elastic, componentized cloud-native solutions that enable scale and operational efficiency.
To keep pace with these tech-forward entrants, a growing number of traditional banks are looking to embrace the cloud, to help them become more flexible, agile and capable of constant innovation.
How adoption and Demand are driving Digital Banking
According to last year’s Global System for Mobile Communications (GSMA) Report – The Mobile Economy 2019, between 2018 and 2025 the number of unique mobile subscribers across Europe will rise from 467m to 481m people. Nearly 80% of mobile subscribers also subscribe to mobile internet and this is forecast to reach 5.8 bn people by 2025. By 2023, mobile’s contribution to the European economy is estimated to reach €720bn as countries benefit more and more from the increased uptake of mobile services and the associated improvements in productivity and efficiency.
This is especially important now that banks’ performance in the digital space is measured against every online experience, not just their direct competitors.
The far-reaching adoption of smart devices in Europe goes hand in hand with the public demand for digital banking services. This is pushing financial services in Europe to move away from branch only services. This was most recently demonstrated by the global pandemic of COVID-19, which led customers to stay away from branches as part of the global lockdowns.
The far-reaching adoption of smart devices in Europe goes hand in hand with the public demand for digital banking services. This is pushing financial services in Europe to move away from branch only services. Most recently emphasized by the global health crisis COVID-19, which led customers to stay away from branches as part of the lockdowns all around the world.
And where do EMIs fit?
"Neobanks" and "challenger banks" - what is the difference between the two?
As new entrants to the banking sector, neo and challenger banks have grown massively over the past decade. According to Fintech Magazine the Compound Annual Growth Rate (CAGR) of both these banking sectors currently stands at 46% with the rate set to top US$356m by 2025. The success of neo and challenger banks have seen is undeniable. But how do we identify them?
Neobanks are entirely digital, cloud-based concerns that reach their customers using web platforms and mobile applications. Current, leading neo banks include Monzo, Atom Bank, Volt, Chime, Starling, N26 and Moven.
Neobanks not only provide current accounts, but additional features such as payroll, expense management and automated accounting services. Neobanks also provide a range of add-ons that offer solutions to the financial challenges SMEs struggle with. They use APIs to help integrate business workflows with banking requirements.
Neobanks do not hold a banking license - in order to operate they rely on a partner bank. Challenger banks maintain a physical presence in addition to being fintech operations. They are also much smaller than mainstream banks.
Today, there are an estimated 100 challenger banks globally. They all hold banking licenses and can offer a range of traditional banking services as well as digital features. These traditional services are also easier to access than mainstream banks. Current challenger banks include Allica, Amicus, Revolut, Tandem, Monese, Metro and MyBank.
And where do Electronic Money Institutions fit in?
Regulators are opening up the marketing to digital banks, with licences for E-Money (EMI) and Payments Institutions accounting for more than 900 licences in 2018. These new entrants are recognised as competitors to traditional banks in the region. In the Economist Intelligence Unit report 2020, most European banks agree (77.6%) that: “Fintechs will continue to have a material cost advantage over traditional banks” and further “that the top two ‘non-traditional entrants to the banking industry’ will be your company’s biggest competitors by 2025.”
There are upcoming generations whose digital-first outlooks are helping the challenger banks to grow. Europeans are increasingly looking to digital banking as an alternative to visiting bank branches. We have entered an era of digital-first generations, who do not differentiate between a digital banking service or a digital TV streaming service. The trend is to push towards one single mobile phone as an enabler of holistic service for everything.
EMIs are meeting this demand.
One good example is purpose-driven EMI Bank FLOWE in Italy, which educates young people on the issues of innovation and economic, social and environmental sustainability. Through its mobile app and the growing ecosystem of partners, Flowe is building a BetterBeing Economy to help young people live a more meaningful, sustainable and happy life. Bringing such an ambitious project to life meant that the bank's creators needed to find a banking platform that was truly flexible.
The bank wanted to onboard customers quickly and benefit from the best technology in the market. The bank made scalability and API enabled flexibility a focus. The launch of the bank was planned in 2020 and thus was met with the difficulty of launching through times of lockdown. Through the SaaS platform, they chose they were successful and were able to bring Flowe to life remotely.
Temenos’ cutting-edge technology powered our launch and now fuels our purpose to bring a new standard of sustainable banking to the European market…Temenos’ SaaS technology helped us to rapidly onboard a significant number of users in a matter of days. It will continue to support our growth as we expand our customer base and reach new markets but mainly, it will help us in our scope that is empowering people to live a meaningful, sustainable and happy life. Temenos’ open and API-first architecture will help us to continuously innovate and bring to market greener banking products and services as we build our reputation as Italy’s most sustainable digital bank.
Flowe CEO, Ivan Mazzoleni
Benefitting EU consumers while
Adhering to Laws
Steering around Regulatory Conditions
The European Union and other countries in the region have new regulations that level the playing field between traditional financial institutions and new Fintech players.
Between the years of 2018 and 2020 European Commission adopted and developed an action plan on FinTech to foster a more competitive and innovative European financial sector. The new regulations and action plan were constructed to enable innovative business models to scale up at EU level and support the uptake of new technologies such as blockchain, artificial intelligence, cloud services, increased cybersecurity measures and the integrity of the financial system. Moreover the Commission wants to promote a well-regulated data-driven financial sector for the benefit of EU consumers and firms.
However, information stored on the cloud presents potential issues, such as data sovereignty and privacy concerns involving customers. This is of vital interest to virtual banks – after all, the cloud is core to these banks’ business model and even identity.
"“Digital Banks are looking for out of the box solutions, so they can get to market quickly. In order for the bank not to have worry about upgrades, the vendor is responsible for constantly delivering against an evolving roadmap, which means the bank can focus on their business model.”"
Credit someone here…
The rise of new technologies has brought forward concerns for both the regulators and the customers. Concerns about data security have not gone away since banks now hold vast amounts of sensitive data on their clients.
It’s a good sign that the region’s regulators are reviewing policies that will allow for a better understanding and use of the cloud environment – especially in the areas of security and data privacy – and enable banks and other financial institutions to make the most of their new technology. Yet another positive development is that the technology industry is keenly receptive to regulators’ concerns and devising imaginative solutions to reduce the risks.
Without doubt, the world of banking has changed for the better, and institutions that fully utilize cloud technology and are innovative in their offerings are the ones best placed to become market leaders, regardless of their vintage.
Indeed, banks looking to enter this increasingly competitive field need a solid partner to guide them through the dynamic, fast-evolving world of cloud technology. Temenos, which was the first to put a core banking system on the public cloud, is ideally placed to fulfil this role.
Temenos can help digital banks join the growing ranks of digital-only players and assist traditional banks keen on migrating to the cloud to compete on a more equal footing in a rapidly transforming industry.
Trends Influencing the Environment
How SaaS is helping EMIs
Innovation is Key
As the market changes, banks’ digital offerings are increasingly key and their ability to attract customers, grow market share and, ultimately, enhance their profitability goes hand-in-hand with digitisation. The ability to launch new products in to new niche markets quickly becomes a vital component in all banks’ armoury.
Concepts like ‘invisible banking’ – on hand at all times yet unobtrusive – are forcing established players to match this approach. What drives these innovations, and what these businesses will be judged on, is their cloud infrastructure.
Migrating to the cloud provides the elasticity banks need, allowing them to access on call a wide range of technological capabilities based on their needs. This is a feature better known as Software as a Service (SaaS). SaaS provides banks with a significant operational advantage, equipping them with the ability to innovate and service unmet customer needs, and drive the digital experience forward while providing significant cost savings.
Additionally, using a robust digital marketplace and collaborating with fintechs (supported via cloud-native, cloud-agnostic architecture, delivered using industry-standard services) enables banks to focus on growth and innovation instead of expending resources on low-value-add tasks such as maintenance of out-of-date technology.
As mobile-first solutions continue to gain traction and expand across the region, there are some key trends that stand out and will continue to influence where Europe is headed.
A number of new entrants are showing the industry the clout offered by innovation and the benefits of a cloud-first stance, triggering a spurt in spending on global cloud services. Analysts have claimed that over 30% of banks worldwide now say that 50% of their expenditure over the next two years will be on new cloud-based applications.
“Challenger Banks & bank challengers (inc EMI) are looking to go-to-market FAST. It is crucial for them to work with a vendor who offers rapid onboarding for functionally rich banking services, and cutting edge, agile technology, that future proofs their business model, all delivered as a service”
Stewart Davies - Commercial Director - SaaS, Europe, Temenos
Key Focus Areas
Sustainable IT Strategies to Succeed
ELIMINATE THE NEED FOR UPFRONT CAPITAL INVESTMENTS ON HARDWARE.
ACCELERATE PROJECT DELIVERY AND ACHIEVE RECORD SPEED-TO-MARKET.
TEMENOS SAAS IS A ONE-STOP-SHOP FOR YOUR JOURNEY TO THE CLOUD
ONLY PAY FOR WHAT YOU USE WITH TEMENOS’ SUBSCRIPTION-BASED PRICING.
Critical Points for IT Decision Makers
Temenos believes that a sustainable IT strategy for neo challenger banks and Electronic Money Institutions (EMIs) needs to cover some essential focus areas. Go to market, and agile support for products are key. It is crucial to find a tech-partner that can prove its ability to provide a fast implementation. The software support offered needs to be robust and scalable so that rapid growth is possible. With rapid change now being normal, neobanks want to expand into other banking business areas quickly. When they are ready to do this, the expansion must minimise risk, and core business should be supported with the same software. Additional software needs to interlink with the technology that an EMI is offering, so open APIs are key.
Temenos is proud to support global digital banks … as they challenge the status quo and digitalize banking at pace. Temenos market-leading technology and rich expertise means that new digital banks and larger incumbents can gain the agility to innovate and grow, without the restrictions of legacy technology.
Max Chuard, CEO, Temenos