European banking outlook: What has changed and what comes next?

European banking has been a hotbed of innovation in recent years, as Open Banking regulations, new cloud technologies, and almost universal adoption of smartphones have paved the way for a proliferation of banking options to hit the market.

However, COVID-19 has had a massive impact on this business and industry. In a market where incumbent banks were already running to keep up, the pace has only gotten a little more intense.

As many consumers across Europe stopped using cash, switched branch visits for app log-ins, and tried out new forms of payments en-masse, the pace of change caught banking executives on the back foot: 88% of people surveyed by Marqeta in a recent report, said their organisation was overwhelmed by the demand for online and mobile banking during the COVID-19 pandemic.

In an already rapidly-evolving banking space, 97% of executives said that new market dynamics have created an even greater need for digital transformation, with 92% of respondents agreeing that innovation was even more important now than at the start of 2020.

Three-quarters of the executives surveyed in the report said their organisation wasn’t prepared for the speed of change triggered by COVID-19 lockdowns, with 89% in agreement that COVID-19 has increased the speed of change in banking from years to months.

Over the course of a few months in 2020, the long-discussed future of banking arrived — much quicker than anyone expected. The trends driving transformation were already impacting markets, but COVID-19 drastically moved up the timescales, creating a new race in which the winners will be determined by who can best adjust their strategy to adapt to the new normal.

On average, banking executives said they felt they had to be more than 30% faster in bringing new products to market in order to keep up, presenting significant new time crunches and in-house demands.

The majority of banks surveyed acknowledged an elemental shift in their banking strategy, with 78% now intending to change their future banking strategy to adapt for the post-COVID world.

If it wasn’t before, a core consideration for banks across Europe is modernising core banking and payment systems as they move forward from COVID-19.

99% of executives surveyed said this has become an even more significant business priority for them. Almost three-quarters (72%) said that building new technology on top of APIs would be critical to providing consumers with more innovative banking services.

At a most immediate top-line level, banking executives indicated that digital investment will be massively prioritized over spending on physical footprint: 80% said their plans for digital transformation have been accelerated, 66% said they expect to increase investment in digital banking and services, and 61% said they expect to increase their digital innovation capabilities.

In stark contrast, more than half (54%) of those surveyed said they expect to decrease their investment in physical branch networks.

European banks exist on a new axis of innovation and priority. Improving innovations around both data analytics and technology to make better use of contextual data was singled out by 91% of people surveyed as important to help them better make lending decisions in real time and make judgements on fraud as transactions are processed.

90% of executives surveyed said their organisation needed to better implement technology that enables them to control how loans are spent and provide more competitive loan products.

According to a Mastercard survey, almost 90% of European consumers use contactless payments. As consumer use becomes universal, and cash use craters post-COVID, bank executives surveyed saw this as a clear point of emphasis: 82% of people surveyed said they needed to speed up their internal process for creating tokenized, virtual, or physical cards.

The move away from the physical branch toward online and mobile banking, made essential by a global necessity to cut down on face-to-face contact, is putting increased pressure on banks to build modern debit card programs.

Almost two-thirds (64%) of people surveyed said their organization will build in new functionality that will allow customers to manage their accounts, transfer money, reset PIN numbers, set budgets and saving goals, and restrict certain spend types — all from their smartphones.

Point of sale financing is also rising in importance post-COVID: 42% of banking executives said that it had risen in importance on their product roadmap.

As consumers look to save more and move away from credit, there’s a growing global market for short-term financing allowing consumers to make high-value or impulse purchases, paying back the amount in agreed instalments.

Alongside a broad set of new spending tools banks are looking to bring to market, executives surveyed coalesced around a set of payment features that had increased in importance.

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