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Straight Talk Technology

Ovum view

Digital transformation dominated as the top strategic priority and key driver of business investment across the banking sector over the second half of the last decade. To illustrate the scale of this at an institution level, Lloyds Banking Group announced a three year, £3bn digital transformation program at the start of 2018 which saw technology expenditure increase 24% on a year-on-year basis in 2019. Against an overall operating cost base of circa £8bn, this represents significant investment and most top-tier banking institutions have embarked on similar initiatives.

However, a crucial question for the sector is how much progress has actually been made, particularly considering spending money is easier to do than delivering business results. To provide a sense of this, data from the ICT Enterprise Insights program gives a view from the institutions themselves as to how much progress they consider has been made. As part of the primary research study launched in 4Q19, senior executives from over 450 retail banks were interviewed regarding their technology investment priorities and strategies looking to 2020. This included an assessment by the banks as to their institution's progress across nine key business objectives that Ovum has identified as core to digital transformation, repeating an evaluation conducted in the previous ICT Enterprise Insights programs since 2017.

In summary, comparing where institutions are at the start of 2020 to where they were two years ago, progress has been positive but the shift in digital maturity across the sector as a whole has been limited. At the start of 2018, the most advanced digital objectives for the retail banks were in adopting a proactive approach to cybersecurity and digital risk, and in rolling out digital workplace strategies for staff. In these areas, just over and just under 30% of banks respectively positioned themselves as being complete or well-advanced. At the start of 2020, the equivalent proportions are corresponding 33% and 36%; a positive, but hardly dramatic, shift.

Indeed, two key areas saw no evolution at all in the maturity of the sector, with no shift in the equivalent proportion for recruitment and training for digital skills or in establishing a clearly articulated digital strategy. Given the widespread investment across the sector in digital initiatives, challenges in recruiting digital skills are unsurprising, however, it remains concerning that many institutions (over three-quarters!) are investing significant sums without clear digital strategies that are understood throughout the institution.

On a more positive note, there has been greater movement in other digital transformation areas. The greatest shift by the sector was seen in the development of omnichannel customer engagement strategies, that is, aligning and integrating digital channels with the other banking channels (primarily contact center and branch). Here the proportion with complete or well-advanced maturity rose from 22% to 30%. Similarly, digitalizing of back-office processes (such as HR, finance, or supply chains), also saw more reasonable progression, with the equivalent ratio of institutions moving from 25% to 32%.

Overall, the average increase in maturity progression across the nine objectives for the sector over the two years was 4.3%. This is moving in the right direction, but given the magnitude of investment involved, shareholders at many institutions are likely to start asking serious questions if greater progress is not achieved by the end of 2020.

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