Banks say they lack the necessary digital and leadership capabilities to transform their businesses (GS, HSBC, CGEMY, IBM, SAN, AMZN, GOOGL, FB, BKRIY)

Banks say they lack the necessary digital and leadership capabilities to transform their businesses (GS, HSBC, CGEMY, IBM, SAN, AMZN, GOOGL, FB, BKRIY)

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To identify how financial services firms measure up on their digital transformation journey, companies, including banks and insurers, were asked to consider how they’re doing across four areas of capability: customer experience, operations, business model innovation, and talent and organization, per a Capgemini report published this week.

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The results show that banks are outpacing insurance companies: 38% of banks surveyed say they have the necessary digital and leadership capabilities to undertake a transformation compared with 30% of insurance firms. However, the numbers also indicate that both players have underestimated the challenges of transforming their business.

The two areas where banks say they’re doing best in terms of digital capabilities that enable transformation are customer experience and operations.

  • Financial services firms appear most confident in their customer experience digital capabilities, with 41% reporting they have the required digital capabilities on this front. Customers’ changing demands play a key role in banks’ focus on customer experience and making transactions seamless: Consumers’ move to mobile has led 53% of banks to offer services through apps and mobile channels, for instance. And some major banks have made significant progress in this arena: Goldman Sach’s digital-only outlet Marcus offers a sleek and easy-to-use interface for its services, while HSBC and Natwest have launched account aggregation solutions, as examples.
  • A little over a third (35%) of respondents say they have the required digital capabilities for operations. Apart from focusing on customer experience, banks need to look at leveraging new technologies to digitize their operations and processes. According to Capgemini, 41% of participating banks said their operations are highly automated, while 33% use data analytics for better decision-making. Overhauling or replacing banks core systems, however, comes with significant challenges and requires large investments, which can be seen from Santander’s $700 million deal with IBM to enhance its digital transformation or the budget overruns threatening Bank of Ireland’s massive tech modernization push.

Banks across the globe have been undergoing a digital transformation to cut costs, fight off competition from new market entrants, and meet changing customer demands. Financial institutions (FIs) are increasingly looking to ease margin pressures: Bank of Ireland’s core system overhaul, for example, targets a cost-to-income ratio of 50% by 2021, which stood at 65% in 2018. Increasing competition from third parties is also a threat, with Amazon, Google, and Facebook, for instance, securing e-money licenses in a financial services push.

The results from Capgemini’s survey suggest that FIs need to do more to master digitization, as the majority of respondents feel they don’t have the necessary digital capabilities to transform in any of the areas discussed; key to their success will be enhanced agility, attracting the right talent, and innovation by personalizing products and services and entering new markets.

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