Joy Macknight

According to recent research, increasing competition has replaced Covid-19 as the main driver for digital transformation.

Digital transformation is still top of mind for banks around the world as they look to accelerate the pace of change in the face of increased competition.

The majority (54%) of the 1000 senior banking executives surveyed in Publicis Sapient’s Global Banking Benchmark Study 2022 say they have yet to make significant progress on executing their digital transformation plans, despite the huge shift seen during the Covid-19 pandemic. Sixty-one per cent believe that rapid, fundamental change – rather than incremental progress – is needed to achieve their digital transformation objectives.

While Covid-19 was again identified as the main digital transformation barrier, only 36% of respondents cited it this year, compared with 48% in the 2021 survey. Almost a third (31%) picked a lack of operational agility and the same percentage chose regulatory challenges. Three out of 10 cited the failure of past digital investment. However, only 19% picked a lack of budget.

Increased competition has replaced Covid-19 as the top driver for digital transformation. For 17% of respondents, the biggest competition comes from digital-first challengers and/or fintechs. However, 16% cite increased competition from direct competitors and the same percentage cite competition from consumer tech companies, telcos or online retailers.

Improving customer experience (CX) is survey respondents’ most important digital transformation goal. According to the report: “To achieve this, banks are combining customer data across different systems to obtain a richer understanding of their customers and their relationships (36%), and using this to design new offerings (35%) and to personalise customer journeys (33%).”

Yet there is a disconnect between C-suite and senior management’s perception as to how advanced their digital CX capabilities are. For example, 70% of C-level executives believe they are ahead of the competition when it comes to personalising CXs, compared with only 40% of senior managers. A similar percentage of C-suite executives think they are better in optimising CX, compared to just four in 10 senior managers.

The survey data reveals a significant difference between C-level executives and senior managers in how they view the importance of these metrics: 85% of C-level execs say CX is a key metric, compared with just 55% of senior managers.

When it comes to operational transformation, the top priority for the next three years is investing in modern cloud-based core banking systems, with intelligent technologies (i.e. artificial intelligence, machine learning and robotic process automation) and data and/or analytics to obtain a richer understanding of customers following close behind.

The survey data also reveals a contradiction: the majority of respondents also expressed a preference to upgrade legacy IT systems and applications, rather than adopting a “rip and replace” approach. “Banks are clearly aware of the operational challenges that come with implementing cloud-based core banking systems, yet understand the benefits and are interested in moving forward,” according to the report.

More than half of respondents report that they feel significant pressure to improve their environmental, social and governance (ESG) credentials; this rises to 61% of surveyed C-level executives.

Importantly, some progress has been made: 65% of respondents have evaluated their investment portfolios’ exposure to ESG risk and 59% say they do more than is required by law in relation to ESG. However, just 35% have diversity, equity and inclusion commitments, and only 31% have ESG sponsorship and oversight at board level.

“By investing in the right technologies and human capabilities, banks can access the ESG data that is key to assessing risk levels and meeting regulatory reporting requirements. Today, banks struggle in this area – most lack the data, capabilities, or process in place to effectively assess ESG performance or evaluate ESG metrics when assessing credit risk,” according to the report.

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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