Banks around the world are on digital transformation journeys, driven by the need to improve customer experience, reduce costs and survive in a new competitive environment. However, they are dragged down by legacy tech infrastructure, complex processes and expanding regulatory compliance requirements.
Many banks are struggling to show results from their vast investments; however, a few leaders stand out among their peers by being able to create value from technology.
But being able to use technology to deliver competitive advantage is not just about increasing tech spend, according to research by Bain & Company. The management consulting firm analysed the results of 42 largest banks worldwide by assets across three dimensions: total shareholder return (TSR) and cost-to-income ratio (CIR) over the past three years, and net promoter score (NPS) from the first quarter of 2023. It then assessed their technology choices along 11 variables, ranging from board composition to a modern technology stack to the mix of IT staff profiles.
Bain’s research found that banks leading in technology deliver an average of five percentage points higher TSR, 10 percentage points lower CIR, and 12 points higher NPS than their peers. It also discovered that spending more on technology alone did not lead to better performance. In fact, IT spending relative to revenue had a negative correlation with performance.
The report, ‘How Banks Can Parlay Technology into a Competitive Edge’, identifies a handful of technology choices have an outsized effect on performance. These include: a tech-savvy board of directors; a higher number of in-house engineers than other IT staff; positioning as a technology company.; and a clear view of target architecture.
The research identified three effective paths, plus an additional emerging path, towards tech leadership:
- reduce operational costs through simplification;
- become a technology powerhouse;
- use digital and data to connect with customers;
- replace the legacy stack with a clean slate.
BBVA, DBS, Capital One, and JPMorgan Chase (JPMC) emerge as their regions’ top performers, demonstrating that “creating a winning cycle in technology stems from rigorous, consistent efforts to simplify and modernise where it matters most”, says the report.
Bain holds up JPMC as a case study, pointing to its modernisation programme which aims to restructure or replace apps for the cloud and decommission 2200 applications. According to the report, the US bank has been investing heavily in improving data and building a data scientist team of more than 900 people, key elements of a successful artificial intelligence (AI) strategy. The Evident AI Index has ranked the bank first globally in AI capabilities among major banks.
Joy Macknight is editor of The Banker. Follow her on X (formerly known as Twitter) @joymacknight
Register to receive the Editor’s blog and in-depth coverage from the banking industry through the weekly e-newsletter.
