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What drives banks’ investments in technology?

Another interesting debate is what drives banks’ investments in technology?

For years, it’s been cost reduction, cost avoidance, regulatory requirements for change, risk management and compliance, competitive imperatives and such like.  Not one of these talks about customer needs however.

I’ve been a firm believer that banks rarely invest for revenue uplift and customer service.  The reason for this is that it is hard to quantify: this may deliver an extra 1% market share; this could increase customer wallet share by a factor of 2; this is likely to create a 50 basis point improvement in profit per account holding; and so on, do not hold water in the bank’s boardroom.

May, could and likely are not words that deliver a successful business case.

This will cost us; our biggest rival is doing it; we’ve been told we have to implement this by 2018; and our exposures are £million; are far more persuasive drivers.

It all comes down to the numbers and banks can far more easily justify and quantify:

a)      Are we being told we have to do it by the authorities?

b)      Are we losing market share to a competitor who is doing something that makes a difference?

c)       Are we exposed to losses by not investing in this?

d)      Can we save money by doing this?

than by some airy-fairy marketing program with some wishy-washy forecasts.

Costs, risks, competitors and regulations are the driving forces behind technology investments in banks.

But maybe this is changing because of digital.

I have been honestly and pleasantly surprised by how many banks are now talking to me about digital change to serve customers better.

Now I know that the backdrop to that conversation is costs, risks, competitors and regulations – these drivers are all bubbling away in the background – but that background is the platform being used to improve servicing customer needs better.

Some banks see this as a competitive play to gain market leadership; some see it as a obvious requirement due to mobile and tablet computing; some see it as an opportunity provided by the raft of regulatory change; some see it as a need to avoid reputational damage and risks of falling behind their competitors; some see it as a natural response to new opportunities and threats, such as bitcoin; and so on.

In other words, the business case is being delivered by the regulatory change, supported by the costs, risks and competitive issues of not doing digital.  However, the implementation of the digital agenda is then being driven by customer focus, service and needs.

The customer delivery of digital support for finance is the new competitive battleground, and that is where the investment is taking place.

Big time.

In fact, any bank that does not see the digital agenda as a window to refocus around customers is lost, in a big way.

Any bank that is not laying down an agenda for change to use the regulatory regime and competitive movements to create their own digital bank program is blind to the need for change.

After all, if I tell you that every bank I talk to today is creating a digital agenda based upon the costs, risks, competitors and regulations that are driving change within their institutions, then the simple truth is that if your bank is not doing this, what are they doing?



About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • I agree with you. Banks must consider technology as big factor since their clients consider it as a big part of how they manage their finances right now. Any business must adapt to their clients’ needs if they do care.

  • Nihat Reis Erdem @mutercim_

    Here is another viewpoint from the bank employee side. A bank employee at the lower level, but one who has enough power to trigger some changese, is more customer oriented. Because he faces the customer everyday. This guy tries to help the customers getting from the bank what they need. And when it comes to convince the upper management about a technological investment, this employee has to pack this customer need in such a way that the decision makers think this change is good for the bank on the cost reduction or revenue side.
    And this means; what you see sometimes as a change for costs avoidance, may indeed be a change for the customer.