European banks are falling behind their competitors, slow to switch to modern technology platforms: BCG
New Delhi, July 7
Nearly 90 per cent of European banks say they face an urgent need to modernise their payments infrastructure, but most are making slow progress due to fragmented legacy systems, regulatory complexity, funding constraints and talent shortages, according to a report by Boston Consulting Group.
The report said the payments business is becoming increasingly critical as competition from fintech firms, big technology companies and payment service providers intensifies, while new regulations and rising customer expectations require banks to upgrade their technology platforms.
"Many banks tell us their modernization programs are making slow progress, amid fragmented legacy systems, regulatory complexity, skills gaps in the workforce, and pressure on funding." the report noted. Without faster modernisation, banks risk losing market share and profitability, it added.
"The results of our study paint a sobering picture," BCG said, noting that while banks recognise the urgency of modernisation, many continue to allocate less than 10 per cent of their annual change budgets to payments, with nearly half of that spending directed towards regulatory and market infrastructure requirements.
Looking ahead, the report estimates that the global payments market could expand from USD 1.9 trillion in 2024 to USD 2.4 trillion by 2029, driven by growing demand for real-time payments, embedded finance and digital payment solutions. At the same time, regulatory changes, including Europe's PSD3 and Financial Data Access (FiDA) framework, are expected to accelerate the need for technology upgrades.
However, execution remains a challenge. Around 20 per cent of banks surveyed said they had stopped or abandoned at least one payments modernisation project because of issues such as vendor performance, budget constraints, regulatory changes and mismatches between technology solutions and business requirements.
The study found that banks are increasingly prioritising artificial intelligence, cross-border payments and real-time payments as part of their long-term payments strategy, while fintech firms are emerging as key partners in the transformation process. Larger banks are generally ahead of their mid-sized and regional peers in adopting these technologies.
BCG said banks should treat regulation as a catalyst rather than a constraint and commit to long-term investments, modern cloud-enabled architecture and stronger collaboration across business and technology teams to remain competitive. "Banking leaders must now either seize the moment and commit fully, or risk watching market share continue to flow toward more agile peers," the report said.
— ANI
Reader Comments
Interesting report. But with PSD3 and FiDA coming, European banks have no choice but to modernize. I think partnerships with fintechs, like what we see with Razorpay and other Indian startups, will be key. Exciting times ahead for global payments!
The fact that 20% of banks abandoned modernization projects shows how tough execution is. But as an Indian who sees the success of UPI, I feel European regulators could take a leaf out of NPCI's book—standardized real-time rails and government-backed innovation work wonders!
As someone who works in fintech, I can say the gap is real. European banks are bogged down by regulations and old systems. Meanwhile, Indian banks have been agile with tech like AI and real-time payments. We should be proud of our digital payment ecosystem! 💪
Even with all the challenges, the global payments market is set to grow to $2.4 trillion by 2029. That's massive opportunity! I think European banks should stop being defensive and start collaborating with tech giants, just like how HDFC and Google Pay work together in India.
Honestly, 10% of change budget for payments is too low! Indian banks spend much more on tech, and it shows. But I must say, regulatory hurdles in Europe are daunting. BCG's suggestion to use regulations as a catalyst is wise. We need that mindset shift globally.
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