Revolution Accelerated

How Digital Transformation is Shaping the Future of Banking

1 Like all businesses, banks have had to act fast to respond to the unprecedented human and economic impact of Covid-19.

2 First, they needed to keep the lights on and ensure business continuity. Second, they had to meet the changing ways customers wanted to engage. Finally, they sought to balance their business priorities with a responsibility to support society. Previous crises cast the banks as part of the problem — this time they are part of the solution.

3 Banks who have embraced modern banking technology have fared better in meeting these challenges. They’ve moved seamlessly to remote working, kept up service for their customers, coped with huge increases in demand and quickly adapted their products. In contrast, banks using legacy ‘spaghetti’ software have struggled.

4 Covid-19 has accelerated the need for modern banking technology, but it didn’t create it. Before coronavirus, the 2020s were already being framed as the decade for digital in the banking industry. Banks’ return on equity were too low and their cost-income ratios were too high. Meanwhile, regulation like open banking was disrupting the industry and increasing competition from new entrants like the GAAFAs (Google, Amazon, Alibaba, Facebook, Apple).

5 Providing seamless digital customer experiences was therefore already a ‘must’. Every year, Temenos partners with the Economist Intelligence Unit (EIU) for a global study on the future of banking. More than 300 banking leaders are interviewed from retail, commercial and private banks. Over half of these are at C-suite level.

6 In 2020, the study took place amid the Covid-19 crisis. The results give a fascinating insight into banking leaders’ approach during these unprecedented times. But they also show how they see their industry in the years to come.

7 And the findings suggest three trends which will shape the future of banking:

New technologies will be the key driver of banking transformation over the next 5 years. 77% of respondents strongly believed that Artificial Intelligence (AI) will be the most game-changing of these technologies. They see a diverse range of uses for AI — from personalised customer experience to fraud detection.
Banks will overhaul their business models to create digital ecosystems. 80% of respondents believe that banking will become part of a platform of services. 45% are committed to transforming their business models into digital ecosystems.
The sun will set on branch banking. World Bank data shows that visits to branches have been steadily declining globally over the last decade. As a result of coronavirus, customers are now more concerned about visiting their branch, and so even more people are willing to try digital applications. This combination of pandemic and increasingly transformative advanced technology has led a majority of respondents (59%) to our survey with the EIU to state that traditional branch-based banking model will be dead in just five years. That’s a 34% increase from last year.

8 The current environment is undoubtedly challenging for banks. But they have the capital, customer relationships and customer data. They are regulated. And most importantly: they still enjoy their customers’ trust.

9 In short, banks are best-placed to succeed if they commit to end-to-end digital transformation. That means a fully digital front office which creates hyper-personalized experiences and ecosystems. And a back office driving efficient operations and rapid innovation. By embracing modern banking technology, banks can support their customers today, create new value for the future and drive new levels of future growth.

Available at: <https://www.cnbc.com/advertorial/how-digital--transformation-is-shaping-the-future-of-banking>. Retrieved on: July 13th, 2021. Adapted.

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