Banks in the UK are increasingly shifting to digital platforms to gain a competitive advantage over FinTechs, according to new research.

A study of 26 banking providers by Information Services Group (ISG), analysed capabilities across four key areas: core banking platform implementation for retail, core banking platform implementation corporate, payment ecosystem services and Know-Your-Customer/Anti-Money Laundering services.

It found that the COVID-19 pandemic has accelerated adoption of digital platforms in the UK, with both banks and merchants pushing for a more cashless society.

The report also notes the ongoing exit of the UK from the European Union will require banks in the country to decouple their networks, including payment and Know-Your-Customer systems, from the EU.

For UK banks to become a competitive financial hub outside the EU, they will need to invest in cutting-edge technology and business processes, the report recommends.

In addition, the report notes many UK banks are closing branches to fund their digital initiatives. Newer and larger banks have begun offering online-only banking services, resulting in several growth opportunities for technology service providers.

Banks in the U. are also focused on retaining customers and attracting new ones through new services driven by technology, the report adds.

Many banks are offering easy-to-use treasury management, supply chain and credit products in an effort to compete with FinTechs.

While banks in the UK have been at the forefront of next-generation payment systems, FinTechs and other new challengers are pushing the boundaries of the payment ecosystem further with API-led service portfolios that include virtual payment cards, instant payment options and loyalty-based credit.

As a way to increase agility, many U.K. banks are realizing they need to modernize their legacy core banking systems, the report adds.

In addition, banks in the U.K. are looking to artificial intelligence and other new technology tools to improve their Know-Your-Customer and anti-money laundering systems, the report says.

A large number of banks are moving toward automated anti-money laundering checks to improve scaling and speed and to reduce false positives. In some cases, service providers are partnering with smaller FinTech companies to develop integrated solutions.

“The pandemic has fast-tracked the move in the U. toward online transactions,” said Bryn Barlow, ISG partner based in the UK and co-leader of the firm’s EMEA BFSI industry practice. “Banks are looking for better coordination between their own platforms and their customers’ digital information and records.”

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