UK and European Banks’ Digital Banking Capability Comparison | Market Insights™
UK and European banks’ digital banking capability comparison
UK and European banks’ digital banking capability comparison
Leading retail banks in the UK and Europe and key attributes of digital banking leaders
The meteoric growth in smartphone adoption, increasing preference for digital-first transactions, and mounting concerns over data privacy and the misuse of customer data are pushing firms in consumer-facing industries – particularly in Banking and Financial Services (BFS) – to make significant investments in modernizing their IT infrastructure.
One of the key focus areas is in digital identity (DI) solutions. And it’s a big focal point: the research we conducted to produce our recently released report, “Securing Digital Experiences in Banking and Financial Services – State of Digital Identity Services Market,” shows that the BFS industry’s investment in identity and access management services will grow at a CAGR of over 13 percent to reach US$5.8 billion in 2022.
But BFS firms aren’t focusing on DI solutions solely for data security-type reasons. In fact, they’ve found that having a robust DI strategy can also help them drive their digital transformation agendas. For example:
With the emergence of data privacy regulations such as the General Data Protection Regulation (GDPR) and Second Payment Services Directive (PSD2), BFS organizations are quickly building their DI capabilities to ensure better protection.
Indeed, many banks are working in collaboration with government institutions to integrate banking and financial services with DI solutions, and are leveraging APIs, biometrics, blockchain, machine learning, and mobile technologies to allow DI solutions to become more secure and accessible. One example is BBVA Compass, which has been actively investing in the DI space through collaborations with fintech startups, hackathons, and establishment of dedicated firms.
From a country perspective, Estonia was one of the first to embrace DI. It implemented e-Estonia, which allows citizens to manage e-banking services that can be integrated with other e-commerce solutions, such as PayPal.
Increasing demand for DI-based offerings is also proving to be a breeding ground for new tech-startups, Indeed, the DI provider ecosystem is expanding well beyond the traditional tech vendors/service providers (HPE, IBM, etc.) and consulting and system integrators (e.g., Accenture, Deloitte, and DXC.) All these types of DI tech vendors are embedding AI and machine learning to enhance the capabilities of their DI solutions. For example, in 2018, Mitek, a DI verification company, acquired A2iA, an artificial intelligence (AI) and image analysis company that uses AI and machine learning to create algorithms that process checks, IDs, and documents.
While the current environment requires banks to evolve and actively invest in DI, it also presents them with a unique opportunity to reposition themselves as trustworthy identity aggregators/providers, as they already have secure systems in place to keep information safe. And some banks are already exploring the possibilities of generating revenue from DI solutions. For example, Capital One is one of the first banks in the United States to test if other businesses are willing to pay to check users’ identities with its DI products. And Rabobank entered into a partnership with Signicat in the Dutch market to offer such services as well.
Instead of treating DI as a problem, BFS firms need to embrace it to accelerate their digital transformation journeys, and build new business models to enable revenue opportunities. To further understand the major trends in the DI market, read our report entitled, “Securing Digital Experiences in Banking and Financial Services – State of Digital Identity Services Market.”
Everest Group recently conducted a study with 55 banking and financial services firms to evaluate their digital capabilities in areas including strategy, organization and talent, process transformation, technology adoption, and innovation. Here are the primary insights we collected from that study.
More than 60 percent of BFS firms have invested in exploring the various use cases in cognitive- and AI-driven technologies. Typical use cases include helpdesk automation using chatbots and other cognitive capabilities for functions such as sales & marketing, data entry, credit assessment, and information gathering.
BFS companies are increasingly leveraging AI-enabled transformation in areas where there is significant customer interaction. So personal finance virtual agents, voice assistants for account servicing, voice-based payments and account authentication, and intelligent message-based account servicing are gaining traction. Not surprisingly, Millennials and a new breed of mass affluent (per The Financial Brand, this segment generates up to 70 percent of banks’ and credit unions’ total retail profits, even though they only make up less than 30 percent of the customer base) are extensively using these solutions for advisory and servicing assistance.
Our study indicates that BFS firms will increase their digital investments by 9 percent in 2018. This is particularly driven by the need to change in response to the evolving regulatory regime, and customer demand for responsive and agile applications. For example, in the U.S., deregulation could pave the way to a shift in the utility space. In the U.K., the Second Payment Services Directive (PSD 2) has heralded an open banking revolution that forces banks to release their data in a secure and standardized format.
Although BFS firms are accelerating their adoption of AI-driven applications, they’re facing significant scaling challenges as digital talent is scarce and in high demand. The biggest talent shortage areas include cybersecurity experts to handle stringent regulatory pushes – such as GDPR in the EU – and those with deep knowledge of big data, without which enterprises can’t realize their full potential in enhancing the technical and functional capabilities of their internal teams on leading big data platforms.
To stay ahead of the competition and remain relevant in the market, BFS firms must invest in enhancing the five following capabilities in alignment with their digital journey:
The above recommendations translate to a customer-focused triple mandate of Experience, Efficiency, and Ecosystems (E3) for banks. The evolution from a product-centric to a customer-centric mindset requires an open banking ecosystem to orchestrate the lifestyle services that individuals or enterprises demand from their financial institutions at speed and scale
This metamorphosis will be challenging not only because of the complicated regulatory regimes and resilient legacy structures, but also the rise of non-traditional competitors.
Please feel free to reach out to [email protected] and [email protected] to diagnose your firm’s digital adoption maturity.
Banking & financial services firms’ have their largest skill gap in big data, cybersecurity, and cognitive & AI
BFS Pinnacle Enterprises™* are achieving digital transformation by building expertise in five capabilities: digital metrics, culture, digital sales channels, data & analytics, and innovation
Banking & Financial Services Digital Pinnacle Enterprises™ focus on process transformation, technology adoption, and innovation
Enterprises use digital for a variety of value propositions; BFS Digital Pinnacle Enterprises™* focus on strategic impact