Nick Cowlen, Software & Solutions Director at MooD International

According to McKinsey, the global management consulting firm, rapid innovation in payments and new regulatory requirements are driving the need for many banks to replace legacy core banking systems. In fact, the consulting firm estimates that banks and other financial services have three to five years at most to become digitally proficient or risk decline. The key question perhaps is whether or not executives understand the real value of digitisation, its impact on overall business outcomes, beyond the need to survive rather than thrive.

For many years, banks had been reluctant to make the investment needed to transform and upgrade their digital system. For instance, European banks allocated less than 20% of global IT spend to investment in the last few years, suggesting that banks were not completely sold on the tangible returns of the adoption of new technology. However, changing customer expectations and transaction migration, such as mobile banking and remote business services, are altering the finance sector (FS) landscape and mindset.

According to a full analysis of a SourceMedia survey of US bank CIOs in the American Banker, most executives anticipate IT spend to jump in 2016 with data analytics, customer experience and governance risk and compliance (GRC) top of their list of areas to invest in. 

What’s driving the digitisation agenda?

Customer experience and the need to harness insights from big data are the major drivers of digitisation in many of the biggest banks in the past 24 months. This is because these factors are fast becoming enablers of business performance.

For instance, research has shown that new challenger banks are taking advantage of the growing millennial market by shifting the emphasis away from physical branches to putting the banking experience literally in their customers’ hands with mobile and online services. This shift is a direct threat to some of the established banks that are too encumbered with unresponsive, non-agile IT system to follow suit. With this example, it is clear that banks have to adapt to remain relevant. However, it’s also an efficient and cost-effective way of providing personalised services and products.

Big data is the other prominent factor driving the agenda of digitisation. There’s a wealth of untapped potential locked in big data and advanced analytics, perhaps most importantly its potential to extend and refine decision-making. However, to make the most of big data, organisations will have to overcome the confusion created by the vastness of big data. Companies that are able to focus on relevant data, the right type of data, will hold the advantage in their respective market.

With digitisation already transforming other complex operations, such as procurement and supply chains, the question of how best to, rather then whether to, harness digitisation is now inescapable for executives and operational leaders in banking and financial services.

How can the value in digitisation be realised?

Digitisation has been proven to drive significant business value for banking institutions both from an operational efficiency and revenue generating perspective. However, a barrier to widespread adoption and exploitation that remains is justification of the business case, and realisation of benefit over time. Leaders need to be able to evidence the value that is being delivered, and feel confident that decisions being made will maximise business performance.

The usefulness of data analytics tools is becoming increasingly important as the size of available data continue to grow exponentially beyond manual comprehension. However whilst executives may have access to good data, business leaders are all too aware that this does not necessarily translate into accurate decision-making (hence the popularity of writers such as Nate Silver and Tim Harford who try to lead us through the paradoxes of data) – so it is critical to apply the right level of business context to truly understand the performance of the things that matter – the outcomes. This is important both in terms of how the business is performing right now, and what needs to happen next in order to optimise performance in the future. A smarter approach is required, and relies upon an understanding how a business or business unit actually works, something which typically exists outside of the data.

The ability to connect different elements together, identifying causal relationships across the moving parts that are driving outcomes, is the key ingredient to translating vast amounts of data into meaningful insights that drive more accurate and impactful decisions.

It is this focus on outcomes that should drive the digitisation agenda. Underpinned by this more advanced analytics technology, leaders can make much more informed evidence-based tactical and strategic decisions, and demonstrate the value such investments are delivering to their business.