Chapter #1
Digital investment practices of leading FIs
How digital leaders responded
To better understand the practices and characteristics that lead to stronger results, we broke out the responses from institutions that reported RODIs of greater than 5% and view themselves as digital leaders. Key attributes of that group include:
Agility
Most leaders (57%) have recently shifted the focus of their digital investments from in-house development to acquiring digital capabilities through M&A.
The same percentage have embraced initiatives that provide immediate cash returns and discontinued initiatives when they became unproductive.
A strategic vision
Leaders are 12% more likely to have clearly defined digital strategies, which can lead to more-targeted investments and, eventually, better outcomes.
Strategic vision
93%of leaders have accelerated investments in new digital products, services and business models or plan to do so — 18% higher than the entire sample.
An investment mentality
The leading FIs spent 15% more than the average FI on digital investments during the last two years. They also were twice as likely to spend on operational efficiency, new products and services and new business models.
Digital investments
61%of all FIs cited funding as the top reason for stalled digital initiatives.
Investment in talent and skills
Chapter #2
How to increase value from digital investments
Strategies to optimize digital investment
As the digital investment landscape evolves, FIs are learning more about how to achieve success. Key insights from the Index include:
Match investments with strategy
FIs can develop and prioritize sustainable digital investment strategies that have C-suite sponsorship and are aligned with broader corporate objectives — a combination that is challenging to achieve. More than 60% of institutions said they do not have clearly defined digital strategies.
The Index reveals that blockchain (58%), internet of things (57%), cloud computing (51%) and artificial intelligence (AI) (49%) were FIs’ top investment priorities over the last two years.
Strengthen M&A and partnership capabilities
Digital M&A exceeded return expectations 52% of the time, the most of any investment vehicle. Partnerships exceeded expectations 45% of the time, while in-house initiatives did so in 39% of the cases and corporate venture capital models in just 31%.
Choosing whether to build, buy or partner can be done on a case-by-case basis, driven by such considerations as development costs and strategic fit. Deals today are more likely to be strategic and transformative than incremental — for example, acquisitions to enter new digital markets or partnerships to fill vital product or technical gaps. FIs that effectively leverage the capabilities and knowledge of others to drive their own growth may be able to deliver faster, better solutions for customers and other stakeholders.
Seek out and retain the right talent
Digital talent
60%nearly 60% of FIs say digital initiatives have stalled due to lack of talent.
To succeed, FIs should create the workplace environments to make their institutions attractive landing spots for digital talent. For example, when Goldman Sachs launched its Marcus digital offering, it created a separate business unit, with different dress codes and work policies, to attract the skilled workers needed to drive success. Similarly, Spain’s CaixaBank maintains a subsidiary that focuses on digital talent and resources and has leveraged it to aid its launch of a lifestyle platform (i.e., imagin) for digitally savvy customers. Only 53% of FIs indicated that they have embraced flexible work policies to attract skilled talent.
Measure results accurately
Relevant KPIs
34%of FIs utilize ROI as a relevant key performance indicator (KPI), and their thinking on how best to measure it continues to evolve.
Other KPIs, including financial metrics like revenue growth, are more common and are used by 62% of FIs. About half of FIs say they use metrics around customer acquisition and experiences, such as net promoter scores.
Quantifying success requires a clear strategic vision, strong governance and data analytics capabilities, and adaptability. Since digital investments are often transformational, returns can be measured, in part, on their ability to help achieve long-term strategic objectives.
It’s important to craft measurements that can provide nuanced insights on investment effectiveness. For example, one large insurance company is seeking to leverage an objective and key returns framework to measure nonfinancial benefits of digital investments.
Determining actionable RODIs for digital investments remains work in progress. It will likely take several years for the industry to establish consistent, systematic measures.
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Pivot core capabilities toward digital
The end game for FIs is to infuse the value of digital investments into the broader organization and digitize core capabilities. This is where the growth potential, efficiencies and additional returns lie — the real reasons for investing in digital initiatives.
Yet most institutions surveyed have yet to see significant progress on moving digital to the front lines. For example, 30% of efforts to digitize core processes are in the minimum viable product stage, while 28% are in the development/build phase of development. Just 3% of initiatives have realized their full benefit.
Embracing operating models that support innovation may require assessing legacy models for digital fit. Some FIs have found success by driving needed organizational change with a top-down approach to transformation that embraces digital innovation at the senior management and board levels.
For example, one FI locates the leadership team of an important digital acquisition near the executive suite to better integrate innovative thinking into corporate decision-making. Efforts to identify and acquire digital capabilities can focus on those that hold the best potential to scale and advance the transformation of the legacy business model.
Summary
As FIs build out their digital capabilities, the results of the EY Digital Investment Index illustrate the challenges and the opportunities ahead. To succeed, FIs can make digital investments a part of a clear, flexible approach that is aligned with corporate strategy, can adapt to changing market conditions and is supported by skilled talent and relevant measurement. In today’s environment, digital investment agility appears to be a must-have capability.