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09th October 2019

Financial world faces “mind-boggling” bill to go digital – AXA IM’s Vinatier

Banks and other financials around the globe will need to spend hundreds of billions of pounds on their IT systems over the next few years in order to be able to compete in the digital world, AXA Investment Managers’ Vincent Vinatier says.

Changing consumer behaviour has already seen a sharp jump in investment in technology by financials as they seek to stay ahead of competition from peers and new fintech businesses. The banks alone are forecast to spend $296.5bn[1] globally by 2021.

Further out, the scale of the investment continues to grow, with budgets increasing for those financials that want to compete in the digital era, says Vinatier, manager of the AXA WF Framlington FinTech fund.

“The size of the issue is mind-boggling in terms of cost,” says Vinatier. “So many banks and other financials still have clunky systems, and if there has been any acquisitions of other businesses in the past then there could be two or three old systems which need upgrading and merging.

“It is extremely complex and we are seeing more of these projects overrun and cost businesses more.”

As well as upgrading old systems, banks and their peers also have to contend with a move to the cloud and constant investment in cyber-security.

There are also increasing demands being put on banks by existing customers who are being offered digital-only solutions from new banks.

“From an investment perspective, this trend of increasing IT spend is a huge area of growth for many years to come, and for the companies offering solutions such as white-labelled digital banking solutions, the organic growth rates are already between 10-20% a year,” he said.

 

Vinatier, whose fund has returned 27.42% year-to-date versus the MSCI World return of 16.49%[2], adds there will likely be an upward trend for digital challenger banks in the near-term.

“Digital challenger banks are likely to continue their upward growth trajectory, with such firms simplifying banking for today’s consumers and being nimble enough to adapt to new technology,” he says.

“In the short term, newcomers are more likely to focus on less competitive – and less capital intensive – areas (currency transfers have been a popular target market of choice), and broadening their offering over time. Collaborating with established financial players or other challengers could be key to unlocking their full growth potential.

“For established retail banks, investing more in their own technology will be crucial in order to overcome legacy IT issues and deliver digitally-friendly solutions for their customers, to keep pace with the digital transformation and these digital disruptors.”

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