Banks “Not Ready” for Digital

Study finds 78% of executives “unprepared” for digital transformation

22/07/2015 Madrid

Experts believe banks still have a long way to go in terms of digitalization / Photo: iStock

"The past is holding banks back."

This is the key finding of Industrialized and Ready for Digital Transformation, a study by IESE professor Robert W. Gregory and Synpulse Management Consulting.

More than one hundred executives from banks, including multinationals with branches in Spain, were surveyed from April to May 2015. The study reveals that the majority feel unprepared for the shift to digital demanded by today’s public.

Although a significant 94 percent of respondents have adopted digital banking to some extent, only 22 percent felt "ready" to embrace the digital transformation of the sector.

What’s Slowing "Digital Readiness"?

The study found significant disparity between respondents’ perceptions and "digital readiness," and the current state of operations. Four key areas for improvement in retail banking were identified.

  1. Heavy reliance on physical branch network. Executives still see physical branches as key to nurturing customer relationships. Although customers, especially younger ones, seem to prefer banking anywhere, at any time, using any device, the transition to "omnichannel banking" is not yet taking place most of the banks surveyed.
  2. Legacy IT systems not fit for modern needs. Older IT architectures are too complex and lack the agility required for digital transformation.
  3. Workflow management is not optimized. Only 22 percent of executives surveyed consider their workflows satisfactorily documented and defined. Some 31 percent claim to be at the early stages in the process and another 11 percent still mostly or fully undocumented.
  4. Too much focus on back-end functions. Banks must extend their transformation efforts to customer-facing, front-end services in order to preserve their most important relationships: with their customers. A significant 95 percent of executives surveyed saw digital transformation as a key means to improving customer relationships.

Three Steps to Drive Change

Professor Gregory proposes a model that divides the industrialization and digitization into three inter-related areas:

  • Processes and operations: driven by standardization and automation. The goals include lowering costs, reducing human errors, increasing speed and enabling straight-through processing.
  • Sourcing and governance: driven by centralization and specialization to deliver efficiency gains via cross-unit synergies and outsourcing with increased control.
  • IT architecture: driven by optimization and complexity management to optimize reliability and responsiveness to new requirements, minimizing complexity.

All of the banks in the study were rated in terms of their readiness for each of these areas. The findings show that banks best prepared in the area of "sourcing and governance," with a rating of 68 percent. "

"Banks still have a long way to go toward industrializing their back end to be able to meet the new set of expectations and demands associated with digital transformation," says Gregory.

With customers demanding any-time/anyplace banking – and with agile FinTech startups entering the marketplace to meet new needs – banks are running the risk of being left behind.