Banks shift priorities toward digitalization and innovation for future growth

Singapore, 30 January 2018

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  • More than half of Asia-Pacific banks expect to become digitally mature or digital leaders by 2020
  • Singapore banks are focused on developing partnerships with FinTechs and workforce enhancement to meet demands of digitalization
  • Addressing cybersecurity threats and enhancing security are top priorities for Singapore and global banks in 2018

Eighty-five percent of banks globally cite implementation of a digital transformation program as a business priority for 2018, with investment in technology to drive efficiency and growth, and manage evolving risks seen as critical for sustainable success, according to the EY Global Banking Outlook 2018.

The report surveyed senior executives at 221 banking institutions across Asia-Pacific (including 9 in Singapore), Europe, North America and emerging markets. It found that just 4% of banks across developed markets in Asia-Pacific currently view themselves as being digitally mature or digital leaders. 22% of Singapore banks, 27% of banks in North America and 15% in Europe consider themselves to be so.

Jan Bellens, EY Global Banking and Capital Markets Deputy Sector Leader, says this may indicate that American and European banks are benchmarking themselves against traditional competitors. In contrast, banks in the developed Asia-Pacific markets, and particularly those in Japan, are comparing their maturity levels with those of emerging regional competitors, who have more digitally focused business models.

“Asia-Pacific has a much higher penetration of digital and mobile technology adoption than many other regions. Mainland China, for example, has the highest rate of FinTech adoption in the world and many of the big cities there are effectively operating as cashless environments. Compare this with the US, where cheques are still prevalent, and the relative benchmarks for financial digital maturity look quite different,” Mr. Bellens says.

“Consequently, an average of three in five banks across the Asia-Pacific markets aspire to reach digital maturity by 2020, about on par with the global average of 62%. An optimistic 78% of the Singapore respondents, most of which are investing in new technologies as part of a defined digital investment agenda, also envision their banks digitally maturing or becoming a digital leader by 2020.”

The survey further found banks in developed Asia-Pacific markets, such as Hong Kong, Australia and Singapore, are focusing on developing partnerships with FinTechs, investing in technology to reach customers and improving risk management, with 82% listing these as their top business priorities for 2018. As part of their internationalization strategy, a majority 80% of Singapore banks are focused on partnering in key overseas markets, while funding these partly via asset sales as they regroup resources away from non-core markets.

Meanwhile, all respondent banks in the emerging Asia-Pacific markets surveyed (mainland China, India, Malaysia and Indonesia) list their top priorities for the year as implementing a digital transformation program, gaining efficiencies through technology, and enhancing data and cyber security.

“The majority (75%) of banks in the developed Asia-Pacific markets and half (50%) in emerging markets also stated they are planning to set up new partnerships or JVs in their core markets in 2018. So, we are likely to see greater collaboration between Asia-Pacific banks and e-commerce or other technology platform players, particularly as open banking reforms progress in markets such as Australia, Hong Kong and Singapore,” Mr. Bellens says.

Globally, addressing cybersecurity is the top priority for banks (89%) in 2018, replacing last year’s top priority of managing reputational, conduct and culture risks, which falls to sixth place in this year’s report. Recruiting, developing and retaining key talent (83%) also garners significant attention as banks strive to integrate cyber experts into their organizations amid a skill set shortage.

This attention to talent was similarly highlighted by all respondents in Singapore, as banks look to upgrade their workforce to meet the demands of digitalization, compliance and customer expectations, and as the government encourages banks to upskill staff to take on more challenging roles as routine operational tasks get further automated.

“Ten years after the global financial crisis, banks are experiencing increased competition from a range of new market entrants and evolving risks that challenge their ability to deliver sustainable profitability. In order for banks to weather the performance challenges that lie ahead, they must emerge from an era of regulatory-driven transformation and prepare new strategies for a future led by innovation and technology,” Mr. Bellens says.

Other key findings from the global survey include:

  • 59% of banks surveyed globally anticipate that their technology investment budgets will rise by more than 10% in 2018.
  • Among those banks that are beginning to invest or increasing their investment in new technologies, 44% plan to purchase the technology from a third party, while only 17% plan to acquire an entity to onboard the technology.
  • Enhancing cyber and data security is the number one priority for banks globally, with 73% of banks planning to invest in technology to mitigate cybersecurity threats.

The complete report is available to download here.

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About the EY Global Banking Outlook 2018

For this report, 221 banking professionals across the globe were surveyed between November and December 2017 to provide a review of banks’ reported financial performance, strategic priorities and technology adoption over the next 12 to 36 months. The respondents came from 29 different markets. Of the banking professionals surveyed globally, 33% were from Europe, 10% from North America, 13% from Asia-Pacific developed, 19% from Asia-Pacific emerging and 25% from Emerging.