A third (36%) are developing their own greenfield digital bank or fintech startup, while nearly half (43%) are investing in fintech start-ups, according to the research "Challenging the challengers: Europe's banks face the competition."

Chief strategy officer at Temenos Kanika Hope remarks, "The competitive landscape is shifting." In light of the challenges posed by fintechs and neobanks, Europe's banks are leveraging the openings created by open banking to work together with their competitors to provide a greater array of superior services to their clientele.

More European banks than their counterparts in other regions are also moving their core banking systems to SaaS and public clouds. In order to compete with more agile rivals, more than a fifth (21%) of European banks view cloud as a strategic priority, making sure their operations are secure and flexible.

Three quarters (75%) of European bankers believe that generative AI will have a substantial impact on the banking sector. AI is also a crucial component of their technology investment strategy, notably to improve the customer experience and boost digital marketing.

According to the survey, European banks are more likely than those in other regions to see neobanks as their main rivals over the next five years. Nonetheless, players in the payment space and tech suppliers remain highly relevant, with European banks projecting that this is the area where new players will acquire the largest market share.

According to Jonathan Birdwell, global head of policy & insights at Economist Impact, "Neobanks and fintechs led the way in leveraging new technologies to enhance client experiences." By copying non-traditional players' use of technology to target clients underserved by traditional financial services and to entice current customers with assistance in managing their personal money, European banks are now retaliating.

Even with their recent progress, incumbent banks continue to fall short of challenger banks in terms of customer service quality. In terms of overall service quality, online and mobile banking services, and overdraft services, Monzo, Starling, and First Direct ranked first, second, and third, respectively, in the Competition and Markets Authority's (CMA) most recent evaluation of personal banking service quality.

In the meantime, "debanking" and branch closures have been the subject of numerous complaints against high street lenders.