The current level of interest rates it is "safe for budget results", while the prospects of reducing the spread by the ECB are viewed with concern. The Big Tech? They are considered a threat, while the aggregations are looked at very carefully. These are some of the main indications that come from asurvey conducted by C2 Partners, an Italian management consultancy company specializing in Financial Services, and created by interviewing the top management of the 33 most representative Italian banks in terms of size and operations.
“The good results achieved in recent years have generated an overall positive climate among top managers, but the responses to our interviews also reveal concern about the ability to face new competitive challenges,” he commented Ugo Massa, founder and CEO of C2Partners. “Regulatory impact, small size, technological rigidity and difficulty in evolving business models are the main reasons that fuel doubts about competitive stability, taking on different accents depending on the characteristics of the bank”.
Interest rates
The increase in interest rates from the ECB was a godsend for the banks which in 2023 inflated their margins to record levels, so much so that it pushed the Government to launch the so-called tax on extra profits with the aim of imposing "a tax on what we consider to be an unfair margin ”, hMeloni said at a press conference on Thursday.
According to bankers, even in 2023 the rates still represent “a guarantee of profitability, but not in the long term,” we read in the C2 Partners report. The wide gap between lending and collection rates in the last two years has in fact generated high margins and the current level of rates still guarantees good budget results. 9 out of 10 managers of large banks and multi-regional/proximity banks think this way. In perspective, however, it is common that the reduction of the spread and the deflationary policy of the ECB "will weigh on balance sheets and will make liquidity management a central factor in the banks' strategy".
The incursion of Big Tech
First the marriage, which later collapsed, between Apple and Goldman Sachs, then the negotiations between Alphabet - Google's parent company - and Monzo Bank. Managers begin to look on with fear to the increasingly frequent incursions of big tech into the banking sector.
In detail, according to 85% of those interviewed, the significant financial resources, the strength of the brand, the governance of relationships with customers and the ability to manage data on habits and consumption will make Google, Apple, Facebook, Amazon, Microsoft a potential concrete threat for the entire sector, even if the current regulation may represent a brake on the entry of Big Tech.
However, the situation is different for women fintech which are already active competitors on the market today, especially in loans to small and medium-sized businesses, a segment that traditional banks historically struggle to serve due to the difficulty of finding a service model that combines the benefits of the relationship with the management costs of the channel (cost-to-serve).
In fact, 88% of those interviewed believe that fintechs are today entities with which to define strategic alliances to enhance their customer base (which fintechs rarely have) and constitute a defensive line against the risk of losing market share.
Aggregations yes, but only if industrial value is created
What about M&A? Joining is considered an option considered valid by all banks to address cost growth and improve margins. In detail, 75% of large banks consider aggregations a path to better cover the value chain, While the dimensional variable it is a prospect that over 80% of multi-regional/proximity banks look at with interest.
“If aggregation is considered impractical by network banks today, digital banks are looking carefully at the possibility of creating synergies with larger groups”, specifies the survey.
Payment systems, bancassurance and artificial intelligence
What should we focus on to generate new value and enhance distribution capacity? 80% of those interviewed among multiregional banks and 90% of large banks have no doubts: about payment systems and bancassurance.
Special attention should also be paid toArtificial intelligence which according to 70% of large banks will have a beneficial effect on customer operations and management. For the majority of network banks (65%), AI will integrate today's services while for digital banks (75%) it will be crucial to modernizing the offer. In multi-regional/proximity banks, on the contrary, concern prevails (55%) due to various reasons: difficulty in assessing the real impact, unpreparedness to adopt its applications and manage its effects, also because the management of the technology is often entrusted to service centers external.
“Digital transformation is considered, in general, a primary factor of competitiveness for the system but only large banks are currently able to make investments to develop the technological platforms that enable it even if, it has been observed, the reduction of costs is making the technology accessible to smaller operators”, specifies the study.
EU rules and ESG principles
The regulatory evolution imposed by the regulator aimed at making the European banking system more solid and sustainable has had positive effects but the majority of the major institutions judge the excessively rigid European dictates (especially when compared to those of the United States and the Far East) and penalizing competitive capacity, an opinion shared by over 85% of multi-regional/proximity banks and 70% of digital banks.
Speaking instead of respect for ESG principles will have a significant impact on the business, especially for the "Governance" component, while the "Environmental" component may affect in particular the price of business services (according to 60% of the large banks and 75% of the digital banks) and will complicate the relationships, especially with micro-enterprises (80% of multi-regional/proximity banks say this).
