6 PM NE TWORK JANUARY 2015 W WW.PMI.ORG
The future of banking is digital. Yet despite the rapidly growing demand for online products and services, many U.S. and European retail banks have struggled
to fund the projects necessary to modernize all front- and back-office operations.
It’s not just about digitizing loan applications to speed up the approval process.
Transitioning from legacy systems at individual bank branches to one digital
system spanning the entire organization has proven especially difficult.
Across Europe, banks have digitized only 20 to 40 percent of their processes,
focusing mostly on basic customer transactions, according
to McKinsey. Ninety percent of European banks invest less
than 0.5 percent of annual spending on digital projects.
U.S. banks are even further behind, says Mike Baxter,
head, Americas financial services practice, Bain & Co., New
York, New York, USA. “Asian banks are the furthest ahead,
followed by European banks, and the U.S. banks have been
the slowest to adapt,” says Mr. Baxter. He attributes the slow
rate of digitization to factors including the recent financial
crisis, mergers and acquisitions across the industry, and
fears about the cost and complexity of projects.
Funding for digitization projects at retail banks is often
crowded out by back-office technology operations, which
account for roughly 45 percent of banks’ IT spending,
according to Bain. Banks that have recently grown through
a merger or acquisition, for example, must execute costly
projects to integrate new brick-and-mortar assets into the
existing technology infrastructure. “That’s an expensive process,” Mr. Baxter says.
Worldwide, just 5 percent to 10 percent of banks’ IT
spending is focused on deploying technology projects
designed to change the way customers interact with their
bank. If banks want to stay relevant, that’s got to change,
says Mr. Baxter: “In the banks that are most advanced on
digital, the balance of IT resource allocation is radically shifting.”
For example, Royal Bank of Scotland last June announced £ 1 billion in
digital technology investments in response to research forecasting that
—Mike Baxter, Bain & Co.,
New York, New York, USA