91% of banks recognise need for digitising retail banking

17 December 2015 Consultancy.uk 5 min. read

Nine out of ten banks recognise the benefits of digitalisation for their retail business, research by BearingPoint shows. As banks are struggling to keep up with new market entrants, they are increasingly digitising their operations to grow revenues and cut costs. According to the consultancy, banks should collaborate with the new entrants, rather than compete, to maintain their market share as benefits will be mutual for both parties.

In the increasingly interconnected world of today, banks are increasingly feeling the pressure from new competitors, such as ‘fintech’ companies. Investment in fintech has tripled to $12.2 billion in 2014, research by Accenture shows, and according to Capgemini and Efma, 61% of banking executives expect the threat of fintech companies to materialise in the coming three years. To ‘stay on top’, banks are spending billions of euros digitising banking functions and customers’ services in an attempt to cut costs, increase revenue and attract and retain customers.

Characteristics of respondents

To find out how well or how bad banks are doing in this digitising process, BearingPoint and the Bavarian Finance Centre (BFZ) surveyed 48 European banks. The results are released in its ‘7 digital questions for banks’ report. Of the 48 banks, 7 are characterised as ‘digital leaders’ – banks that have digitised much of their business; 17 are ‘digital shy’ – banks that are reactive in digital, rather than active, and still suffer from legacy systems; 20 of the banks are ‘digital laggards’ – those banks that are passive in their digital behaviour. 

Reasons to invest in digital technologies

Banks that are digitalising their operations chose to do so for several reasons, of which the most common are higher sales and lower costs. More than half (53%) of the banks cite ‘grow revenues’ as their number one reason, and for an additional 27% this also applies for the most part. ‘Saving costs’ applies mostly for 51% and for 41% completely. Using digital technologies to ‘enter new markets’, is the least cited reason, and applies completely for 32% and mostly for 38% of the respondents.

Departments benefitting most from digitisation

Digital technology is becoming increasingly important for banks’ retail businesses. According to 91% respondents, digitisation will be most beneficial to their retail business, and 67% say that using digital in their retail offering helps them to attract and retain customers and improve efficiency. Although this is the case, only 17% say that that their retail banking offering is sufficiently digitalised. Private wealth management and security-related services are also expected to benefit greatly from digital technologies, at 81% and 79% respectively.

The makes for a successful digital project

Successful digital projects
The research also lists the makes of a successful digital project, as identified by the respondents. The most important hallmark of digital success is ‘corporate culture’, cited by 95%. This is followed by ‘customer inclusion’ and ‘good implementation planning’, both seen as important by 86%. On the other side of the spectrum, ‘a lack of financial resources and staff’ is seen as the biggest obstacle to digital success.

Reacting to new market entrants

Reacting to new market entrants
The number of new market entrants, including fintech companies and telcos, is growing rapidly, posting serious threats to traditional banks. In an earlier released report, BearingPoint states that banks should partner up with telcos to avoid losing customers and market share. Of the respondents, just over half 54% say they want to do just this, while 46% say they plan to compete with the new entrants.

Responding to the results of the survey, Martin McKenna, Partner responsible for Financial Services at BearingPoint Ireland, says: “In general, most banks have struggled to produce technology that’s quicker and smarter than that developed by fintech players who are revolutionising payments services. Our survey reveals a growing realisation by banks that they can’t out-innovative fintechs and that joint collaboration is the way forward.” The researchers believe that partnering up provides benefits for both parties: “Cooperating with fintechs give banks access to innovative technology saving them from having to invest in it themselves. In return, fintechs get access to capital and to a large customer base, which enables them to achieve economies of scale and turn a profit.”