You don’t have to search too hard to find examples of banks outlining the impressive scale of their innovation programs in 2016. Whether they’re pouring millions into FinTech, overseeing global start-up incubators, or joining collaborative projects to explore the potential of blockchain, the message is clear – banks are perfectly poised to take advantage of the transformative technologies reshaping financial services today.
But are they?
A new white paper sponsored by SAP and compiled by the International Data Corporation (IDC) leads with the question “How ready are European banks for a digital world?”, and the findings suggest that while many big banks are using the right buzzwords to promote their tech programs, the true scale of innovation taking place at financial incumbents leaves a lot to be desired.
The main purpose of the report is to establish exactly how deep digital transformation initiatives run within banks today. To find out, the IDC surveyed 250 banking institutions from across the EMEA region, analyzing where they stood on a scale of 1-5 (worst to best) in terms of their ability to consistently deliver data-led experiences to customers and promote a culture of digital innovation and collaboration across the entire bank. You can take a closer look at the IDC’s five specific categories below.
Worryingly – at least according to the IDC’s scale – only 7% of banks scored a best-in-class 5 out of 5 in their survey, with the majority of banks sitting at the “Opportunistic” (2 out of 5) stage in terms of their digital transformation capabilities.
Based on the report’s parameters, that means most banks today offer customers digital experiences and products that are “inconsistent and not repeatable”, and operate on a project-by-project basis that focuses mainly on the front-end rather than a holistic approach to digital transformation. The IDC says the number of banks operating at the top end of the scale is “far too low for comfort” – with only one in four EMEA banks having “created and executed a holistic end-to-end digital transformation strategy to engage customers.”
Among the white paper’s recommendations for banks is the need to involve the IT department at the outset of any digital ventures. Currently, less than 50% of banks get IT on board at the start of their digital projects – with many consulting IT only when project planning is “already well advanced”. It probably comes as little surprise (especially to FinTechs) that the IDC’s survey respondents also admit that projects which have early IT involvement are more likely to be deemed a success. The white paper summarizes that “the strengths and resources of the IT department must be harnessed if digital transformation is to be truly enterprise-wide.”
Elsewhere, the report reveals some very interesting data about the relationship between banks and FinTechs. A surprisingly high 30% of banks still view FinTech mainly as a competitive threat – a statistic that rises to 43% in France and 37% in Germany. On average though, a slightly greater percentage of banks across the EMEA region saw FinTechs as possible collaborators – a scenario which the IDC says is an absolute “must” for banks if they are to “stay relevant in the growing digital economy.”
Many banks still view FinTech purely as a threat.
Elaborating on the point, the white paper concludes, “The growth of external digital ecosystems is seen as a threat to financial service providers that have traditionally been able to hold on to the entire value chain for many customer journeys. However, the healthier response for banks is to work out how best to engage with those ecosystems rather than turn inward. Being able to build partnerships with third parties – whether FinTechs, other lenders, or players from other industries – will be key to creating new value for customers and protecting the incumbents’ market position in the long run.”
Overall, the warning shot fired by the IDC and SAP white paper is best summarized by its assertion that banks “must recognize that digital transformation is not a ‘mobile-only’ initiative, but that it affects the entire enterprise.”
The report certainly makes for interesting reading, and if its findings are accurate, banks must move quickly to ensure their big talk on digital transformation is matched by an all-encompassing plan to make it a sustainable reality.