US community banks say lending is ripe for digital transformation, Finastra research reveals

Lake Mary, FL – April 20, 2023 – Finastra research reveals that just one in ten financial institutions are not currently seeking to integrate fintech solutions, indicating that 90% are actively pursuing new fintech partnerships to improve their offerings. A key pain point is the automation of digital workflows, with respondents saying only 29% of their commercial and consumer lending workflows are automated, indicating that more than 71% of processes remain manual, marking a clear opportunity for effective fintech partnerships.

The research, conducted by East & Partners, finds that banks view new customer acquisition and strengthened retention as the key considerations for fintech provider selection. three out of four banks prefer fintechs that can clearly demonstrate black and white revenue gains stemming from streamlined processes, leading directly to increased share of wallet and retention. It is important that fintech partners do not have too disruptive an impact on operations and customers, with 65% of respondents indicating that guaranteeing minimal impact is a priority.

Lending process automation remains a major area for improvement, with significant room for growth in approvals, closing, origination, and servicing. 11% of respondents say they utilize automated approvals, while just 10% offer automated loan closing processes. Even fewer respondents have succeeded with origination and servicing automation, at 7% and 6% respectively.

The research was conducted amongst 783 interviewees at 260 banks in the UK, Europe, the Middle East, Asia Pacific, and the Americas, as well as 393 interviews with North American community markets banks and financial institutions. The findings explore the current appetite in the marketplace for fintech investment and integration, and Environmental, Social and Governance (ESG).

Other insights include:

• Economic uncertainty is affecting fintech investment – When considering the current economic climate, applying digital transformation to manage risk is mixed, with under two thirds (62%) of financial institutions actively investing. Almost 40% of respondents have delayed fintech implementation plans and instead adopted a “wait and see” approach, indicating that, with more economic clarity, opportunities for fintech collaboration remain.
• Fintech integration comes with challenges – Interoperability constraints (47%), legacy system upgrades (36%), and automating manual processes (31%) were identified as the main challenges teams face when integrating fintechs into their product offerings, highlighting the need for flexible software solutions powered by open APIs.
• ESG is a growing area of focus – Of the 69% of respondents focusing on ESG priorities, attaining senior management alignment on sustainability initiatives (59%) and reducing carbon emissions (36%) are they key drivers for fintech partnerships, representing a clear growing area of focus.

“In an environment characterized by uncertainty, high inflation, fluctuating interest rates and recessionary risks, banks are under an increasing amount of pressure to drive operational costs down while continuing to improve how they serve their customers,” said Isabel Fernandez, EVP Lending at Finastra. “Our survey demonstrates the recognition from banks that they cannot navigate these waters alone. They are instead opting to partner with fintechs, with a preference for plugging into a platform of integrated fintech solutions, to help them to adapt quickly while reducing costs.

“The research also shows that ESG is continuing to expand throughout a bank’s internal operations and external offerings. At Finastra, we champion the idea that finance is open. Whether through our open platform for collaboration and innovation – FusionFabric.cloud – or our belief in open technology, mindset and culture, we are helping banks future-proof their offerings and drive a better future for the communities they serve.”

"Major inflection points in recent years have had, and are still having, a dramatic impact on how financial services is evolving,” said East & Partner Global Head of Markets Analysis, Martin Smith. “This is forcing institutions to reconsider how they manage risk, increase their agility, and fast-track innovation to evolve with new demands. We partnered with Finastra to better understand and showcase how banks are adapting to this environment. We believe that despite the challenges facing global banks, the industry’s focus on collaboration and driving ESG initiatives forward, highlighted by the research, will ultimately have great benefits for financial institutions and their customers, today and in the future.”

Access the full reports and findings here:

Global report – Build a formula to win: Orchestrating digital transformation in corporate and commercial banking

How financial institutions can win in North American Community Markets: Digital transformation

ESG: The new playbook for financial institutions

Some percentages sum to more than 100 due to multiple responses from interviewees.

Survey methodology

• East & Partners conducted 783 interviewers, including 250 interviews with banks’ ESG heads, at 260 major banks of multiple tiers globally, coupled with 393 North American Community Markets banks.
• The markets covered are: Kenya, Nigeria, South Africa, Tanzania, Hong Kong, Singapore, Japan, Australia, Germany, France, UK, Nordics, UAE, Gulf States and North America, including North American Communities Markets.
• The respondents are Corporate and International Banking (CIB) Heads, CTOs and Heads of ESG within the banks.
• The average asset size of the banks surveyed is $344.5 billion.
• All interviews were conducted directly over Teams or Zoom calls by an accredited East interviewer. Fieldwork was executed over an eight-week period concluding in January 2023.

For further information please contact:

James McKenna
Senior PR Manager, Americas
T: +1 845-546-2745
E: james.mckenna@finastra.com
Finastra.com

About Finastra

Finastra is a global provider of financial software applications and marketplaces, and launched the leading open platform for innovation, FusionFabric.cloud, in 2017. It serves institutions of all sizes, providing award-winning solutions and services across Lending, Payments, Treasury & Capital Markets and Universal Banking (Retail, Digital and Commercial Banking) for banks to support direct banking relationships and grow through indirect channels, such as embedded finance and Banking as a Service. Its pioneering approach and commitment to open finance and collaboration is why it is trusted by ~8,600 institutions, including 90 of the world’s top 100 banks. For more information, visit finastra.com.

About East & Partners

East & Partners is a leading specialist business banking market research and analysis firm. The firm’s core expertise is in the provision of analysis and advisory services tailored for the commercial, business, and institutional banking markets across Asia Pacific, Australasia, Europe, and North America.

The delivery of accurate quantitative analysis on businesses exploding demand for sophisticated transaction, FX, debt, treasury, investment and advisory banking services and products has been uniquely addressed by East's "bottom up" research methodologies since 1987, based on many thousands of customer interviews with CEOs, CFOs, treasurers, and business owners.

East's multi-client demand side research and consulting work has enabled the firm to partner virtually every major domestic and international bank present in the geographies the firm operates in.

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