Banks pivot toward an innovation-led strategy
Greater digital maturity is critical to global banks’ future success, which will require them to take advantage of the ecosystem externally and become more digitally enabled, according to a latest report from EY.
The report, covering a total of 221 financial institutions across 29 markets around the globe, said that to successfully insulate themselves against the impacts of future downturns on financial performance and business continuity, banks must complete the transition from regulatory-driven transformation to innovation-led change.
This was echoed by the surveyed banks, among which 85 percent cited the implementation of a digital transformation program as a “business priority” for 2018. Lenders said that they will invest in technology to drive efficiency and manage evolving risks, which will be critical for their sustainable success.
The global survey reveals that almost two-thirds of banks anticipate their technology investment budgets will rise by more than 10 percent in 2018. Investing in technology to better serve customers, improve efficiency and implement digital transformation programs all feature in the top 10 priorities for banks globally.
The increase in budgets is also expected to positively impact most functions, with more money available for investments in a range of areas, including compliance, risk, finance, IT, operations and product development.
As such, EY noted that banks will need to become more digitally mature, do less themselves and make extensive use of an ecosystem of industry utilities by forging a diverse range of partners to support their digital transformation.
Traditional players in the banking industry need to make meaningful investments in end-to-end processes and infrastructure aimed at driving real efficiencies across the entire organization, as opposed to spending their innovation dollars on tactical projects and front-end customer interfaces, the reported added.
However, EY said that technology investment budgets are not the only lever for banks to become digitally mature.
Rather than investing in every new technology individually, digitally mature banks need to develop a deep understanding of how collectively and in combination these new technologies benefit business, operations and organizational strategy. It is imperative that banks adopt a “problem-based” approach to technology implementation rather than an IT-centric approach.
Digital maturity also means that banks have a clear ambition for the type of organizations they want to become, a plan to get there and, critically, enough self-awareness to understand that they can’t do it alone, the survey said.
Implementing this ambition requires banks to step outside both traditional lines and agile lines of project management, and define new best practices for bringing about innovation-led change in their organizations.
EY believes that “a banking ecosystem” will be more important than evermore and dynamic approaches such as partnering will become more prevalent as banks begin to recognize that they do not have the money or capabilities to drive all innovation internally.
Steven Xu, a financial partner of North China at EY, told reporters in a phone interview that facing fierce competition from financial technologies firms, Chinese banks must recognize their strengths and weaknesses and then introduce partners at appropriate times and for appropriate businesses.