Are banks ready for a digital-first future?

In part 1 of our Global Banking Benchmark Study series, we explore what banks need to do to bring digital into all their operations.

Incumbent banks are embracing digital in their transformation efforts – but are they moving fast enough to put digital and customers first?

For banks that had been grappling with digital transformations, the impact of COVID-19 was an unexpected reckoning. Overnight digital competencies became mission critical as the pandemic forced most of the global economy into lockdown. Now banks are attempting to retain that momentum and accelerate their transformation for a digital-first future.

“Pre-COVID, there was a realization that we had to invest in digital,” says Sonjoy Phukan, Chief Operating Officer at Bank of Singapore. “Our clients and employees have become more digitally demanding, and the emergence of fintech players and digital banks firms up that belief. During COVID, we realized that we had to accelerate that.”

Publicis Sapient’s Global Banking Benchmark Study suggests that banks still have significant work to do – and that time is running out. While 83% of banks have a clearly articulated digital transformation strategy, 81% say that the pandemic has added a sense of urgency to their efforts to improve digital skills and capabilities.

What’s more, 70% say that COVID-19 highlighted weakness in their bank’s customer experience, and nearly half said that their transformation priorities were rendered useless in the face of the crisis.

The Covid-19 pandemic has highlighted clear shortcomings in banks’ digital transformation plans, while increasing the urgency to resolve these.

No going back

While some banking elements will return to pre-pandemic days, there can be no complete return to normal. During the pandemic, banks were forced to become more agile and won’t be able to abandon that agility once the crisis is over, even if they wished to.

“Since the beginning of the pandemic, we have adjusted the ways we are working and done a lot of new things very quickly,” says Valerie Eymard, Chief Innovation and Digital Transformation Officer – International Retail Banking at BNP Paribas. “We should keep looking forward and further embed those changes across our business.”

Transformation is more than just offering online and mobile banking – banks have to work out how to digitize their workflows and processes and improve their analytics capabilities to get actionable insights from their data. They should also dismantle silos to build a single view of the customer and think about how to build new sales channels. But for most banks, this is easier said than done, as slow momentum threatens to undermine progress. So how can banks accelerate their way to a digital-first future?

“Our clients and employees have become more digitally demanding, and the emergence of fintech players and digital banks firms up that belief.”

Sonjoy Phukan

Chief Operating Officer

Bank of Singapore

Not banking standards – digital standards

Ultimately, the goal is to serve all customers with innovative new products and services that are delivered with greater efficiency. The results of any transformation should be both new revenue streams and improved margins.

Against that backdrop, COVID-19 has created opportunity as well as crisis. While 70% of the banks in this research say the crisis has highlighted weaknesses in their organization’s current customer experience, they are excited about what they can achieve, while 82% say their firm is quick to pivot to new opportunities if there is customer demand.

Alexandre Giros, Directeur du Digital at La Banque Postale says, “Our clients’ standards are not bank standards, but digital standards more generally. Everyone has become digital-friendly.”

Competition heats up

Banks that either don’t rise to this challenge or think they can step back as the threat of COVID-19 recedes will lose substantial ground to their rivals.

There is an elite group of transformation leaders in mainstream banking – just 14% of the total sample – that said they were already making inroads with agile product development and intelligent technologies when COVID came along. These trailblazers are moving beyond legacy systems to reap the benefits of digitalization and will leave the rest behind.

Who are the Transformation leaders?
Who are the Transformation Leaders? - Our research found that banks fall into one of four groups based on their current level of progress in two areas that are critical to digital innovation: customer experience and operational transformation.

Competition is also increasingly fierce from more recent entrants to the banking market as the boundaries between sectors blur. Best-in-class banking capabilities increasingly come from a mix of financial services and non-financial services firms. Alibaba, Apple and WeChat, for example, have made significant strides into financial services. Fintech businesses are also exploiting new technologies, with no legacy operations to worry about, are an increasing threat.

“It’s easy to look at our scale and say, ‘who would you really pick as a competitor?’ But it’s the wrong way for firms like us to think, especially if you're obsessed with customer experience,” says Allison Beer, Chief Product Officer and Head of Customer Experience and Digital for Consumer & Community Banking, JPMorgan Chase.

“What we do is benchmark every single one of our capabilities against those companies with best-in-class capabilities. We benchmark against up-and-coming fintechs, major traditional players, or non-financial institutions,” she explains. “You have to compete on the small scale if you’re going to be super-competitive at the big scale.”

Banks are beginning to recognize this imperative. In our research, 34% say that digital-first challengers and fintechs have had a major impact on their digital transformation strategies and priorities. And 28% say the same about consumer technology companies.

40% of banks point to the advanced technology capabilities of digital-first challengers and 33% say that consumer technology companies are setting the benchmark for attracting and retaining talent – a crucial concern given the need to bring new digital skills into banking.

Banks are juggling a range of competing priorities when it comes to setting their digital transformation strategies, but the Covid-19 pandemic tops the list.
“The basic philosophy is you need to be wherever your customer is. Be part of their journey and their life cycle in whatever device or shape they live it."

Marco Eijsackers

Global Head of Digital Transformation

ING

Be where your customer is

“Focusing on just one set of competitors will not move banks forward with the pace and breadth they need”, warns Marco Eijsackers, Global Head of Digital Transformation at ING.

“Increasingly we see the big techs or platforms like Alipay, Alibaba or WeChat as our competitors. At the same time, we’re being challenged by fintechs,” says Eijsackers. “The transition we want to make is to a scalable reusable banking platform.”

“The basic philosophy is you need to be wherever your customer is. Be part of their journey and their life cycle in whatever device or shape they live it.”

Now, this shift is only set to increase, with more than a quarter (27%) of banks indicating they are prioritizing omnichannel servicing to create seamless customer journeys as a core part of their transformation strategy.

In part 2 of our Global Banking Benchmark Study series, we explore what leading banks are doing to drive forward their digital transformations.

    More insights from our Global Banking Benchmark Study series:

  • How banks are making the leap from aspiration to action

    Banks are looking to the future, and it’s clear that the time for talking about digital transformation is over – so how can banks make the move from digital laggard to digital leader?

  • Leading banks bet big on innovation, tech and talent

    What sets today’s leading banks apart from the rest? It’s not just that these leaders have moved faster and further with transformation, but that they are working hard to identify the barriers preventing them from being truly digital-first and working to overcome them.

  • Four ways banks can become digital-first leaders

    What lessons can be learned from those who are confronting the challenges of digitization, the threat posed by digital-first challengers and who have embraced opportunities for change? A focus on customer and operational leadership.

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About the research

Data in this article comes from a global survey of 1,041 senior financial services executives conducted by Publicis Sapient in collaboration with Longitude, a Financial Times company.

In addition to the quantitative research, a series of in-depth qualitative interviews were conducted with senior executives from six globally leading financial services firms.