European banks’ strategic response to the threat of fintech entrants

Introduction

In recent years, the banking sector has experienced a seismic shift, with fintech startups and neobanks reshaping the financial landscape through technological innovation. These digital entrants have not only enhanced customer service but have also made significant inroads into previously untapped markets, thereby becoming a real threat to incumbents.

European banks’ response to the rise of new entrants

However, established European banks are not merely spectators in this evolution. According to a recent study by Economist Impact and Temenos*, a significant 35% of European banks now recognise neobanks as their foremost competitors over the coming five years, a figure 10% higher than the global average.

In response, European banking institutions are recalibrating their strategies, drawing inspiration from the digital-first approaches that have fuelled the success of their new digital competitors. This strategic realignment is not just about adopting new technologies; it is about integrating these innovations into a holistic framework that enhances customer experiences, operational efficiencies, and innovative services.

Future outlook

As the financial industry advances, the capacity for innovation – blending agility with security, and customer-centricity with operational excellence – will become even more crucial. European banks are now embracing this digital transformation, indicating a period of increased competition but also of rising synergies in the financial sector.

As we enter this new era of banking, the journey of digital transformation will indeed bring opportunities for unprecedented collaboration between incumbents and new tech players, as well as between direct competitors (coopetition).

* Challenging the challengers: Europe’s banks face the competition, Economist Impact and Temenos, 2024