Why should major Banks in Italy make additional investments of over one billion Euro in information and communications technology in the next three years, as suggested in a brand new report from Accenture? And why is this a golden opportunity – and not a provocation? The reason lies in the new internal and external context of the Banking industry which is pushing for strong change. As a direct consequence, there is a need to rapidly evolve the predominant business operations model which is no longer economically sustainable.

Technology and information systems can make a difference in this scenario by providing new models to defend Banks’ business and re-launch it in a more sustainable and profitable proposition. In addition to the lasting crisis during which the cost of credit for the Banks virtually exploded, there are two main factors accelerating change.

The first is digital disruption, driven by customers who have radically altered their behaviors and who have a whole series of new needs. They demand new and better levels of service and want to interact with their Bank easily, rapidly and safely, especially using digital channels. The volume of physical transactions in Branches is sliding by approximately 15% each year. Indeed, Branches are increasingly empty. As a result of these new customer behaviors, the traditional value chain is being stretched out to incorporate what happens both before and after the actual financial transition. This, in turn, is having an enormous effect on customer loyalty and the Banks’ capacity to create new sources of profit. All of this is giving rise to a new ecosystem in which the Banks will have to defend their central role and ward off encroachment from digital natives such as Google, Amazon, PayPal and others who are progressively invading service niches. Recent analyses by Accenture show that this phenomenon is putting at risk between 20% and 30% of the total revenues of Italy’s banking sector.

The second factor pushing Banks to invest more heavily in technology is the new environment introduced by the European Central Bank. The criteria by which capital requirements can be modified now impact business functions and the information systems they rely on as well as the quality of integrity of data, cybersecurity and operational continuity. To put this in context, Banks were fined over 180 million Euro between 2009 and 2013 from domestic authorities alone.

An information system that has been certified and approved and that responds rapidly to new regulatory norms can change capital requirements and generate enough value to marginalize the cost of the information system itself.

Post originally published in IlSole24Ore, Tuesday May 19th, 2015

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