There is reportedly a strong correlation between a bank’s technology choices and its performance, showing that overall success hinges “on deft use of technology rather than on simply spending more on technology,” according to an update from Bain & Company.
Bain & Company analysis finds that banks “leading in technology deliver an average of 5 percentage points higher total shareholder return, 10 percentage points lower cost-to-income ratio, and 12 points higher Net Promoter Score than their peers.”
Creating value from technology “entails sustained simplification, low-cost and adaptable processes, and a great digital experience for customers.”
Three strategies have worked “to date,” the report from Bain & Company claims.
Each requires persistent focus “by the C-suite, an excellent engineering function, commitment to transform the business and not just the technology, and consistent investment over time.”
As select banks globally are proving, technology has “become a new basis for competitive advantage.”
Whether pursuing platform modernization, a digital experience for customers, advanced data analytics, or new forms of artificial intelligence, leading banks “use technology to gain an edge in areas ranging from process efficiency to product innovation.”
By helping lower costs associated with running the bank, technology “frees up the bank’s investment capacity to improve products and the customer experience.”
This has created “a virtuous cycle: lower run costs, higher investment in efficient and delightful technologies, happier customers, and more revenue and profits to invest.”
Effectively deploying powerful technology “has become critical to banks’ success, for several reasons.”
Consumers and business customers “demand simple, convenient, data-rich, and more tailored digital experiences, and they can easily move their money to whoever has the best offer.”
Digital-native and major technology vendors still “threaten traditional banks.”
Regulatory compliance requirements “continue to expand.” And the best technology talent is gravitating “to leading banks as great places to work.”
Modern technology, like cloud-native banking platforms and AI-supported processes, can enable banks to “automate sophisticated tasks and thereby provide real-time responses to customers at a low cost.”
Banks can tap into an ecosystem of vendors “to verify customers’ identities through biometrics. Continuous integration and continuous delivery tools and best practices enable companies to deliver more with less.”
However, for all that banks spend “on information technology—worldwide, on average, about 16% of their total cost base—many still get mired in complexity with high operating costs due to legacy technology, bloated IT assets, and complex processes.”
These characteristics combine “to limit investment capacity, leading to an inferior customer experience and product portfolio, and resulting in low customer ratings and high defection.”
The solution is neither “to scale back ambitions and spend less, nor to simply spend more.”
Instead, it starts with “a clear strategic intent from the top to modernize the business and its technology underpinnings to simplify and accelerate growth of the business.”
To tease out which choices matter most, Bain & Company “analyzed the 42 largest banks worldwide by assets.”
They assessed their results “along three dimensions: total shareholder return (TSR) and cost-to-income ratio (CIR) over the past three years, and Net Promoter Score℠ (NPS) from the first quarter of 2023.”
They then assessed their technology choices “along 11 variables, ranging from board composition to a modern technology stack to the mix of IT staff profiles.”
In a regression analysis of the variables, they found that banks “with a strong focus on technology rank among the top performers globally and show an average of 5 percentage points higher TSR than other banks in their region, 10 percentage points lower CIR, and 12 points higher NPS.”
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