Digital transformation in banking - did we just decide not to talk about it?

Profile picture for user slauchlan By Stuart Lauchlan November 6, 2019
Summary:
Digital transformation programs used to be pitched hard by banks, but are they now part of the new norm?

piggy bank

Yesterday’s report on the results of a new study into digital banking delivered the conclusion that while consumers like doing their business online, it remains too much bother to migrate away from ‘legacy’ banks and onto the new breed of digital-only challengers.

A consequence of that is that the burden is now on the traditional banks to deliver the digital capabilities that customers clearly want in order to strengthen their hold on their captive base. It’s been a recurring theme of the recent years to hear the CEOs of the big banking institutions flagging up the number of mobile app customers they have and how much investment they’re pumping into the digital transformation of all their customer-facing services.

But that’s not quite the case today. A trawl through the recent earnings analysts calls from some of the biggest names in banking flags up a surprisingly low profile for digital all of a sudden. For example, management at Royal Bank of Scotland in the UK makes one passing reference to the “impact of digital”, but it’s left to the imagination to ponder what that might be. In the US, JP Morgan Chase is a bit better as CFO Jennifer Piepszak says that:

Digital capabilities that we're rolling out to our customers in terms of self-service is not only better for them, but more efficient for us. And so we have realized significant productivity to date in not only in our technology investments, but other investments, and think still [we] have room to run.

One of the most surprising digital sidesteps comes from Lloyds Banking Group whose most recent numbers last week elicited no follow-up data on digital, despite the bank having committed to a £3 billion digital transformation program. That’s now passed the halfway point with some successes, but you need to go back a few months to find CEO António Horta-Osório bigging up the progress made:

We are already delivering a number of tangible customer in business outcomes against each of our strategic priorities supported by £1.5 billion of strategic investment to-date. This successes reinforce our existing competitive advantages and create nuance, equipping us to compete more effectively both today and in the future.

We have adopted a modular approach to transformation and we continue to successfully execute against this. It provides benefits to both customers and colleagues as we deliver change quicker, more cost effectively, and on a more meaningful scale than ever before.

Stripping away the inspirational management speak, on a more real-world level, the CEO was able to point to deliverables, such as virtual assistants  now managing up to 5,000 conversations daily - with customer satisfaction up 10 points, it seems - and 25% of queries handled without being passed to a colleague. He went on:

We are the largest digital banking in the UK with around 16 million digitally active users and 10 million mobile app users, which 75% of products now originated online. This is complimented by the largest branch network in the UK,…The combination of these has also enabled us to deepen customer relationships. We are the largest current accounts provider in the UK with more than 17 million active current account customers. Single customer view is now available to over 4 million banking and insurance customers.

That’s not bad at the halfway point, although speculation about Horta-Osório’s future in the CEO seat will inevitably lead to scuttlebutt about the future of the digital investment, especially in light of recent poor results.

American view

In the US, digital now accounts for more than a quarter (26%) of Bank of America’s business. BoA is a prime example of a traditional bank tapping into its real-world assets with digital capabilities layered on top. CFO Paul Donofrio says:

Our digital and physical worlds are increasingly connected and synergistic. Digital appointments are great example of that. 13% of our financial center platform traffic is now driven by appointments set in advance. This allows us to better prepare and staff for the specific needs of our customers and improve their experience.

Customers continue to transact and interact with us in person as well as through digital channels. So we continue to invest in both, by adding financial centers and renovating existing ones as well as enhancing and adding capabilities to our number one ranked digital banking platform. In fact over the past year we have opened 98 financial centers, renovated 562 and installed nearly 1,000 ATMs and remain on track to hit our build-out targets.

In the UK, Barclays CEO Jes Staley stakes the claim to his bank being “the number 1 provider of active mobile banking services” based on Competition and Markets Authority (CMA) quality metrics:

We do have the highest-valued banking mobile app in the UK and we've put a lot of investment in that.

The bank has now begun a project to migrate 1.6 million customers from the Barclaycard legacy app onto the latest version:

[Having] 8.5 million Barclaycard and Barclays customers on one platform means sharing a richer experience with all of them, and provides our customers with access to a larger set of products and services.

Over at Wells Fargo, the bank’s latest numbers suggest 30.2 million active digital customers, up 4% year-on-year and with mobile customers up 7% across the same period. At the same time, bank tellers and ATM transactions declined 6%, reflecting a shift away from offline banking and validating the firm’s branch closure - sorry, consolidation program.

The bank is currently awaiting the arrival of a new full-time CEO who most likely will bring his own strategic priorities with him,  but in the meantime digital projects continues, according to interim CEO Allen Parker:

We also announced plans to pilot, next year, Wells Fargo Digital Cash, which is designed to enable us to complete internal booked transfers of cross-border payments running on our first distributed ledger technology platform. This new technology should drive operational efficiencies by providing longer operating windows and real-time processing. Finally, we announced a data exchange agreement with Plaid, a leading data platform. With this agreement, our customers will have greater control over the bank account information they share with Plaid-supported apps, including the ability to turn on or off data sharing through Wells Fargo's Control Tower.

While interesting tech projects, that’s less ‘day to day’ banking than many banks have played up in the past, although Parker adds:

One thing that probably doesn't get enough focus is that a lot of the money and time that we've spent on the risk and control side of things really does enable further innovation. So, the money we spend in technology and data, for example, has huge customer impact down the road. So, there's not an either or necessarily, there's a lot of mutual benefit from running a more controlled environment.

A reminder though of the importance of digital transformation to support and enhance the customer experience comes from Citigroup, where CFO Mark Mason observes that tech investment should deliver customer-facing and back-end operational benefits:

Technology helps with the client experience in terms of the lower costs to serve, but also improving the way and the experience that our clients have with us…then technology helps with the efficiency of how we run our operations. So expanding our cloud infrastructure, removing legacy data centers and physical service, using automation, for example. So a number of different buckets are impacted by the technology spend that we make.

My take

The conclusion from this brief round-up seems to be that digital investment is still happening and it is delivering results, so the ‘legacy’ providers are doing the spadework to shore up their defences from the challenger disruptors. That this work is no longer being pitched as the big ‘look at us, isn’t this sexy?’ thing is perhaps encouraging. If digital investment and transformation is now part of the new norm, then that’s all to the good.