After finding a number of flaws in digital transformation strategies, the European Central Bank will do targeted reviews and on-site inspections at banks.
The ECB surveyed 105 large banks last summer to find out how far along they were in their digital transformation. Early results, according to the central bank, show some interesting trends in six policy areas.
The survey found that almost all European institutions have a digital transformation strategy, which usually takes up a fifth of the IT budget, though the level of maturity varies. The main goals are to make products and services more focused on the customer as a way to increase sales and improve operational efficiency by automating processes and updating IT infrastructures.
But most banks are still having trouble coming up with Key Performance Indicators (KPIs) to track digital progress, measure how digital transformation affects their profits, and track how well implementation is going. Many still have trouble keeping track of their digital customers and sales.
Having enough IT experience in the board and in the second and third lines of defense is still important. As new technologies like the cloud, APIs, and artificial intelligence get better, this is becoming even more important.
“As banks open up their IT infrastructures and increasingly rely on third party providers, they face heightened risks of third-party dependency, money laundering, fraud and cybersecurity,” states the ECB. “These risks require further monitoring and must be taken into account in banks’ governance and risk appetite frameworks. These risks are also among the supervisory priorities of ECB Banking Supervision for 2023-2025.”
Another survey done by IT vendor ITRS last year with 300 technology and IT executives from North America, Europe, and Asia-Pacific found that many of them think the fast pace of digital transformation in the financial services industry is changing the way their IT systems work, which raises serious concerns about their ability to keep running.
The ECB says that its goal is not to stop digital transformation efforts. It recognizes that digital transformation is no longer a choice for banks, but a must if they want to stay competitive and keep meeting customers’ changing needs.
