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Banking

How banks should approach their modernisation journeys

How banks should approach their modernisation journeys 3

How banks should approach their modernisation journeys 4By John da Gama-Rose, Head of BFS, Global Growth Markets, Cognizant  

Businesses across the world are facing a combination of crises, from inflation to growing energy prices to the long-term consequences of the pandemic. As a result, companies are battling challenges around technological change, talent attraction and retention, as well as fulfilling the environment, social and governance (ESG) role expected of them by regulators and society.

The Future Ready Business survey by Economist Impact, commissioned by Cognizant, looked at the status of companies across sectors and explored how they could prepare to thrive in this environment. One of the industries that scored the lowest was banking and capital markets, which scored fifth of eight in future-preparedness. The survey concluded that banks, asset managers and financial intermediaries need to urgently modernise if they are to become future ready.

The sector is still suffering from the 2008-2009 financial crises, which led to tighter regulation of its activities and reputational damage that many businesses haven’t managed to shake off. In addition, the financial industries have seen a sharp increase in the number of competitors, as the amount of tech-savvy, client-obsessed FinTechs has exponentially grown over the last decade. In fact, the UK’s fintech market is now valued at £11 billion and represents 10% of the global market.

But it’s not all doom and gloom. Leading players in the banking industry have made notable progress in key areas, such as modernisation of their core and personalisation of services. These are positive steps in the right direction for individual companies, but the banking and capital markets industry as a whole still has a lot to do to build on these initial successes and continue on its modernisation journey.

Embracing digital first 

The pandemic brought to light many banks’ digitalisation deficits, as remote solutions had to be quickly implemented and internal workflows proved to be less smooth than usual. In the UK, some banks have begun to reprioritise their digital transformation  journey to switch certain services online, such as PIN resets, filling out forms and changing loan terms.

Digital solutions – particularly around cloud migration and automation – are already playing a key role in banks’ efforts to modernise and will continue to do so over the next decade. Cloud migration is chosen by many banks to streamline their processes more efficiently. Although cloud migration can be complex, as it often requires tailored solutions, banks that have adopted it have reported cost reductions, improved employee experience and built-in automation capabilities leading to a shorter time-to-market.

Digital transitions are highly complex operations that demand strong, long-term support from banking and financial institutions’ leadership teams and deep alignment throughout the company. Unfortunately, this is where a gap in support can harm organisations; our survey found that only 43% of senior banking and capital markets executives strongly support modernisation in their organisations.

Going greener

The direct climate impact of banks and financial services companies is relatively modest. Banks’ direct carbon emissions usually come from office operations, data centre use or business trips. Their indirect environmental impact, however, is considerably higher, as it includes the carbon emissions produced by their investment and/or loan portfolios.

This is why banks need to take a proactive stance when it comes to assessing their loans and investments’ sustainability impact. And it seems like many are already doing so, as 87% of banking and capital markets institutions see environmental sustainability as somewhat or very important for businesses today. In practice, however, only one-third of banks actually have resources and staff dedicated to reducing their impact on the environment, and less than half claimed to pursue relevant professional development activities.

One thing is clear; companies in the industry can and must do more. Action can be taken in the shape of assessing the sustainability impact of their many investments and loans, or nudging customers to opt for greener products through special promotions or discounts.

Success stems from the people that drive it

Another area banks need to work on is talent attraction and retention, which has proven to be a top challenge across most industries. Banks, asset managers and financial intermediaries are in a good position having not fully lost their appeal to high-flying professionals, but the sector’s reputation remains scarred by the Global Financial Crisis.

But employees are key to making a business future-ready, as there can be no success without skilled and motivated people. Addressing the industry’s shortcomings in their environmental impact, as well as on diversity and inclusion would go some way towards increasing its appeal to purpose-driven younger talent but would not suffice in and of itself.

Leaders must use technology to improve the work environment and optimise the employee experience, if they are to create an engaged, motivated and satisfied workforce. Many banking and capital markets institutions have already understood this and acted accordingly. Fifty-four percent reported that their company’s technology improvement efforts had a significant positive impact on their employees‘ satisfaction over the past year.

From resilience to preparedness 

Organisations in the banking and financial sector do have remarkable resilience. Ninety percent of the employees surveyed reported that their companies would be able to keep operating in the case of significant IT disruptions. However, these business’ tech infrastructure needs to go beyond simply being able to operate in the case of an emergency.

To ensure that the industry is ready for anything, the sector needs to eradicate outdated operating models and invest in innovation to double down on efforts to modernise the core of their operations.

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