Balancing performance against growth: 60% of banks plan to invest in new technologies as market challenges persist

Friday, 17 March 2017

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  • Banks need to incorporate a five-step approach to improving profitability
  • Partnerships with technology disruptors crucial to success

While only 11% of banking executives globally expect their financial performance to improve significantly over the next 12 months, the majority of banks (60%) are planning to invest in new customer-facing technologies to help spur growth according to the EY Global Banking Outlook 2017.

Managing reputational risk (69%) and meeting regulatory compliance and reporting standards (66%) are the top two strategic priorities for banks globally in 2017, reflecting a continued need to strike the right balance between risk management and building tomorrow’s growth engine. Closer to home, enhancing cybersecurity and complying with consumer regulation and remediation issues are taking precedence, with the full 100% of Australian banking executives surveyed identifying these two areas as their top priorities for the year ahead.

The survey of senior executives at almost 300 banks across Europe, the Americas, Africa and Asia-Pacific also identified two key growth focus areas for the global sector: recruiting and retaining talent (63%) and investing in new customer-facing technology (60%). These areas remain equally important for Australian banks, with two-thirds (67%) of local executives listing them as their organisation’s top growth priorities.

EY Oceania Banking and Capital Markets Leader, Tim Dring says the outlook findings show that, globally, bank executives realise that they cannot simply wait for a return to normalcy in order to achieve meaningful profitability.

“In the current environment, the banking industry must innovate in order to grow. Banks right across the globe are looking for alternative ways to reshape, organise and optimise their businesses, so they can be more efficient, while also meeting the needs of regulators and consumers,” Mr Dring says.

“Banks need to do less – streamlining operating models and partnering with fintech, blockchain firms and other industry disruptors to deliver better services. They need to be relentless in driving out costs and managing risks. The key to success will be building a better ecosystem, not a bigger bank.”

“At the same time, putting the customer at the centre of business models is going to be paramount to rebuilding trust in the sector. For Australian banks, this is particularly important given the increased pressure from government and regulators is unlike to abate in the short term,” Mr Dring says.

According to the survey findings, globally, banks should be focusing on five overarching themes:

  1. Reshape – The banking industry will coalesce around four primary business models: local boutiques, global boutiques, regional champions and universal super banks. Banks must determine their preferred model and then restructure operations accordingly.
  2. Control – Banks need to strengthen their three lines of defense risk management approach by improving efficiency, strengthening focus on vendor management and creating simpler supply chains.
  3. Protect – Banks need to minimise internal and external threats by putting legacy issues in the past and demonstrating they have systems in place to prevent money laundering and financial crime. They will also need to prepare for cyber attacks and future outages and embed cybersecurity within their digital and fintech agendas.
  4. Optimise – Despite cost-cutting initiatives, the operating cost-to-asset ratio for banks has barely moved in the past five years. Banks need to shift to a forward-looking effort to embrace technology and drive “next-generation efficiency” in expense management to make progress.
  5. Grow – Banks need to invest in staff and customer-facing technology to support innovation in order to defend market share and ensure they remain competitive as customers become more willing to use financial products offered by non-traditional partners.

“The report sets out an ambitious agenda for global banks in the year ahead. New technologies are transforming business models and causing disruptions across the financial services value chain. Incumbents need to move beyond conservative, incremental adjustments and effectively implement and execute bolder, company-wide innovation,” Mr Dring says.

“Even in today’s challenging and volatile global market, uncertainty cannot be an excuse for inaction. Banks must take decisive steps to optimise their businesses, improve financial performance and drive sustainable growth.”

To read the full report, visit ey.com/bankingstrategy.

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About the EY Global Banking Outlook 2017

For this report, 286 banking professionals across the globe were surveyed in November 2016 to provide a review of banks’ reported strategic priorities over the next 12 months. The respondents came from 29 different markets. Of the banking professionals surveyed globally, 59% were from EMEIA, 17% from the Americas and 24% from Asia-Pacific.