More than half of retail banks are looking to collaborate with FinTechs to advance their own digital banking offerings, with 56 per cent expecting that incumbent/FinTech sandboxes will become mainstream by 2025.

An Economist Intelligence Unit survey of 405 global banking executives on behalf of banking software firm Temenos revealed that retail banks now rank adoption of new technologies as a more pressing priority than regulation and changing customer demands.

The report, now in its sixth year, surveyed banking executives about the key challenges they are expecting to face between 2020 and 2025, with developments such as Open Banking, FinTech challengers and growing investment in artificial intelligence (AI)and cloud technology topping the list.

The top proposition identified by retail bank executives when it comes to innovation was building a greenfield or standalone digital bank, with 36 per cent refocussing their strategies towards building an app-based or online banking system to rival the likes of Monzo, Starling and Revolut.

Overall, 41 per cent of respondents said they were seeking to act as a true digital ecosystem, while 28 per cent are offering their own and third-party banking and non-banking products and services.

As a result, the importance of new technologies like AI, machine learning and blockchain have rapidly become strategic priorities for banks around the world.

According to the survey, AI is becoming a key part of the new technology mix, with respondents saying its most valuable use will be in improving the user experience through greater customer personalisation and 61 per cent believing that AI will create better value for customers by 2025.

However, 44 per cent stated that customers’ biggest concerns related to AI are uncertainty about security of their personal information. This may explain why cybersecurity is the top focus of banks’ digital investment (39 per cent) and why 68 per cent believe regulators will tighten cyber security authentication protocols by 2025.

When it comes to cloud adoption, three in five respondents said they expected banks to deploy more computing power in the public cloud by 2025 than they currently deploy in all the private cloud data centers.

Commenting, Temenos chief executive Max Chuard said: “Forward-thinking banks are aiming to capitalise on Open Banking through progressive digital strategies, to become aggregators or build digital banks.

“To truly differentiate, banks need to modernise their end-to-end stacks, embrace agile deployment methodologies and adopt cloud-native digital banking software,” he added.

Renée Friedman, report editor at the Economist Intelligence Unit, added: “The banks realise that, in the longer term, their biggest competition may come from partnerships between tech giants and FinTechs.

“To remain competitive, they will need to prove that they are safer in terms of their customers’ private data and security if they are to retain their customers’ trust and loyalty.”

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