The risks posed to the traditional finance industry by fintech are considered to be some of the biggest threats banks face today with Fintech/Robots topping the list. Along with increasingly onerous levels of regulation, banks, and other financial institutions are facing a race against time to build their fintech offering before smaller start-ups take market share. Banks are slowly waking up to this fact, and many financial institutions have now released products to capitalise on consumers’ demand for fintech products and mobile banking.
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To try and quantify how mobile banking penetration and fintech is shaping today’s banking sector UBS Evidence Lab conducted a mobile banking survey of 27,914 customers from over 210 banks in 24 countries.
Of all the countries studied, the results from France are the most revealing because the country’s adoption of mobile banking technology is running behind the rest of the world leaving huge room for improvement. French mobile banking penetration rose to 32% in 2016 from 21% last year — the developed market average is around 44%.
Compared to the rest of the world, French retail banking cost/income ratios are relatively high, partially due to a very dense branch network.
Mobile banking could boost RoE by 160bps
BNP and SocGen have cost/income ratios in the mid-60%s whereas many other European banks are reporting similar ratios of 50%. But there is enormous scope for French banks to lower these costs. The percentage of French people claiming they visit their bank branch several times a month has crashed from around 60% to around 20% between 2007 and 2015.
Further improvements in the mobile banking and a higher penetration rate could yield impressive returns for French banks. According to a previous survey conducted by UBS, which quizzed the managements banks across Europe, SocGen and BNP are forecasting a return on equity of 12.6% and 8.3% respectively 2019 in the base case scenario.
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However, without incorporating any impact from higher mobile banking penetration and only imputing a greater number of branch closures UBS estimates the RoE of SocGen and BNP could tick higher by 160 basis points above management’s forecasts thanks to a lower cost/income ratio and a similar level of transactions as customers move on to mobile platforms. These figures are extremely revealing, not just for French banks but for banks around the world as they transition away from the traditional model of large branch networks to mobile-based platforms.
Here are some of the key data takeaways from USB’s report:
“Within three years, the banks surveyed indicated that they expect mobile banking revenues to rise by as much as 8.2% (on a weighted average basis) over the next three years cumulated. On the cost side, management expects a >20% reduction in their domestic branch footprint with a simultaneous 16% staff reduction. We approach this latter number with some caution, however, as the dispersion of responses among banks is rather large. As for the transaction costs, French banks estimate a 15% cost saving to come from switching from in-branch transactions to on-mobile banking equivalent…”
“Assuming our forecasts do not incorporate any impact from mobile banking but the planned branch closures, these net revenue adjustments relayed by banks in our management survey would take our base case 2019e cost-income ratio for the banks in our coverage down by 2.6pp on average – simultaneously adding 160bps of RoE.”