A high proportion of banks are behind where they’d want to be on their digital transformation programmes. Significant investment has gone into these programmes, but many state that they haven’t yet gone far enough or achieved the returns they expected. According to a survey conducted by The Digital Banking Report on the progress of digital transformation efforts, only 17% of banks responded that their digital transformation was ‘deployed at scale’. And consumers agree that banks lag behind their favourite brands in providing the key deliverables of digital transformation programmes.
Investment in innovation continues
Banking leaders aren’t put off by this lagging progress and plan to further ramp up spending on banking innovation. 72% of banking CEOs are prioritising further investment in new technology and European banks currently spend a quarter of their IT budget on new technology, a figure that’s expected to rise to a third by 2022.
These decisions are justified by the higher returns banks can see on product innovation, with the average annual RoE (return on equity) for product origination and sales coming in at 22% compared with the 6% RoE on providing credit from balance sheets.
Where should banks invest to realise value from digital transformation?
One of the biggest challenges for banks trying to innovate is the unwieldy legacy infrastructure that underpins most of their business systems. Replacing these systems from the ground up via large-scale digital transformation projects is proving difficult and many banks are searching for alternative routes to achieving a modern seamless digital customer experience.
Recent years have seen budgets directed towards core modernisation, data management, deploying AI, and some cloud migration. Large scale modernisation and transformation projects have routinely ended in failure, with the closure of RBS digital bank Bó just six months after launch being a notable example.
The smarter move for banking CEOs is a tactical, journey-based approach to transformation that allows banks to launch digital products and services to service emerging market demands while gradually migrating away from legacy to cloud-native platforms.
This approach entails less risk with a gradual migration, cutting time-to-market, and therefore achieving faster time-to-value. Platform based solutions offer a “plug and play” style approach that enables their solutions to work alongside existing systems, getting your organisation around the common legacy barriers to innovation. This way of working enables you to shift quickly, easily and affordably away from a product focussed approach to a customer-centric operating model.
If you’d like to explore how Nucoro can help your firm to deliver digital investment solutions, we’re available for a conversation whenever best suits.