4 Trends Shaping Digital Innovation in the European Banking Sector, Part 1

Changing customer expectations, mixed with pressure to reduce costs and ramp up efficiency, are driving finance and banking institutions to push the button on digital acceleration. Although the pandemic has brought the need for digital innovation into sharper focus, for some time now bank customers have been moving from traditional branch-based banking to online and mobile alternatives. Today, the banking sector is pushing back-office transformation to the top of its agenda, particularly traditional institutions bound by myriad legacy technology and business processes.

In the first of two articles, we’ll take a look at two challenges facing the European banking sector, the risks facing organisations on the path to transformation, and why there’s real cause for optimism that the sector can become more agile and digitise its back office in the same way it has revolutionised customer-facing operations.

Find and Nurture Talent in the Post-Pandemic World

In Europe, finding and retaining the right talent is a major challenge. Like many sectors, as the post-pandemic world becomes a reality, banks are going to run into a severe shortage of the digital skills they need. In-demand workers such as developers, software engineers, and data scientists are among the professions locked in a talent war, with banks facing competition from technology companies, not to mention fintech rivals.

Aurelie L’Hostis, senior analyst at Forrester, said in a Forbes article, “The competition for talent with technical skills has been intense over the past years and has become even fiercer amidst the pandemic.”

Where banks are unable to source new talent, their attention must turn to reskilling their current workforce. Many financial institutions have launched ambitious reskilling programmes, with the spotlight placed firmly on retraining internal employees to fill part of the skills gap.

“Adaptiveness and adaptive talent management are now crucial: To deal with permanent change, banks must expand their talent pool by tapping into skill adjacencies and proactively help employees develop new skills at speed. In the future though, dynamic adjustments of skill profiles and upgrading of available skills will become more of a challenge,” L’Hostis added.

Adding to the complexity is the highly publicised “Great Resignation,” where employees are reportedly leaving their roles in droves, also dubbed a “turnover tsunami” by Deloitte. Realistically, what we’re experiencing is actually a great realignment in a highly competitive market. Employees are questioning what’s important to them, how and where they want to work, and the values they want from their employer.

Banks must better understand their employees and invest in both their wellbeing and career development, including skills. All of this is happening at a time when many are balancing a return to the office with hybrid working models.

Banks Must Embrace Business-Focused Digital Transformation

Banks and their leaders are fully aware of the need to transform and thoroughly embrace digital. The industry throws billionsat the challenge each year, yet problems persist around how aligned such digital transformation efforts are with business objectives.

In fact, Deloitte, in its “2022 Banking and Capital Markets Outlook” report, points to the lack of a “common, strategically linked, business-first language for digital transformation across the institution.”

Neither banking nor the broader financial services sector are alone when it comes to aligning and understanding the organisational impact of digital transformation. The sheer scale of change and its never-ending nature lead to disparate transformation programmes, run in silos, that fail to ladder up to broader organisational objectives.

This is evident in the modernisation of core systems. The banking sector has seen huge investments in the front office with customer-facing technology, while the back office is still running on legacy systems and old data models. According to Deloitte, “just 11% of banks have fully modernised core systems to the point where they can easily integrate emerging digital technologies.”

During the global lockdown, financial services organisations recognised the need to digitise the back office, to drive more value from the whole enterprisewide system, and to connect those processes and the data that underpin them. There’s still a great deal of work to do for the banking sector.

Viren Patel, strategic industry advisor for financial services at Workday, says, “It’s about having a platform that’s going to give you the ability to react, to be agile, and to be resilient to all those changes in the industry. With banking, there are constant shifts in regulation. There are new disruptors entering the market all the time. So the ability to bring in new measures, to add new dimensions as the market changes with a flexible data model is key.”

Similar questions persist around how banks can benefit from deploying artificial intelligence (AI) at scale and fully embrace robotic process automation (RPA) both on the front and back ends of their operations.

In a previous article, Nick Hutton-Penman, deputy CEO at Tokio Marine Kiln Group Ltd., outlined the role of back-office systems that can swing 180 degrees to support change. “You can’t underestimate the need for adaptability, because, right now, all financial services businesses are going through a huge amount of change very, very quickly. Digital transformation is about having the foundation of a tool that’s flexible and that businesses can bolt on new modules and processes as things change, inevitably beyond their control, in the future,” he said.

Workday’s Patel added, “Banks and financial institutions’ approach to tech must be scalable, and should clearly articulate how it aligns with the business roadmap. This approach will help avoid some of the friction between lines of business and the corporate function, because there’s a more holistic approach to technology that dovetails with what the business is trying to achieve.” 

In the second part of this article, you can learn more about why cybersecurity and environmental, social, and governance (ESG) have become two key trends for financial services organisations.