Bank CIOs will play a crucial role in the drive towards greater profitability seen in the UK financial sector, according to KPMG.
The firm’s annual benchmarking report titled ‘A Paradox of Forces’ analyses the full-year results of the five biggest UK banks RBS, Lloyds, HSBC, Barclays and Standard Chartered. Many lenders have seen a return to profitability or witnessed their losses fall – such as Royal Bank of Scotland (RBS), which has seen its yearly losses drop from £8.9 billion to £3.5 billion as it continues a transformation project that includes a substantial overhaul of its IT infrastructure.
But despite growth in combined profits across the sector – up from £12.7 billion in 2013 to £20.6 billion last year – a strong focus will remain on cost reduction, with investment in new digital services playing a key role, the report claims.
“Cost-cutting will continue. However banks must use new technologies to increase returns from their customer and cost reduction activities,” said Pamela McIntyre, head of banking audit at KPMG.
“They are challenged by accessing data integrating information across silos and complying with Basel Committee regulations. We are in an age where chief information officers play an important role in defining the banks’ future directions.”
The report makes the point that banks are attempting to face up to a ‘once in a life-time’ disruption to their businesses due to evolving regulations, technology and customer expectations.
This includes an increasingly diverse competitive landscape, with the introduction of challenger banks unencumbered by legacy IT and focused on digital services, as well as a rapidly changing payments landscape that is seeing the likes of Apple, Google and Samsung threatening to eat away at some of the banks’ profitability in future.
Bill Michael, EMA head of financial services at KPMG, said: “Competition is increasing as new challenger banks and peer-to-peer platforms offer customers new ways to borrow and deposit and technology-led services such as PayPal and e-wallets change the way money is transferred and goods and services paid for."
He added: “While it is important to put customers first, embed cultural change and embrace technology, it will be the banks that have a clear and sustainable business model that stand the best chance of success in the future.”
Nevertheless, despite clear attempts by banks to improve customer service with the use of mobile and online channels - while digital tools available internally help bridge data siloes to provide more information to customer-facing staff - bank technology strategies still lack maturity, the report claims.
"There is significant progress to be made and banks have not yet harnessed the power of digital or understood how it can be a positive disruptor," it states. While the need for improved service is clearly recognised at all levels within the banks, the appreciation and understanding of the role of digital in that battle is not as widely understood.
"Going forward banks must embed digital within their DNA, while accelerated digital transformation must be at the core of business strategy in order for them to succeed."