2018 CGI Client Global Insights Retail Banking Report · 2018-11-29 · Improving customer experience to increase loyalty and drive revenue 91% 94% 90% 80% 4 Driving customer and

2018Client insights and CGI perspectives

on business and technology trends

RETAIL BANKING

An outlook on trends and priorities based on in-person conversations with business and

IT executives around the world

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INFORMING STRATEGY THROUGH CLIENT INSIGHTS

Each year, CGI leaders meet face-to-face with business and IT executives to hear their perspectives on the trends affecting their organizations and the implications for their business. Our experts incorporate the findings and insights from these conversations into our annual strategic planning process and share them with clients through CGI Client Global Insights reports.

In this report, CGI presents the insights and perspectives from our conversations with retail banking executives, who cite regulation and security as the dominant drivers this year in the face of new regulatory schemes and the move to open banking.We thank the more than 1,400 commercial and government executives across the globe who participated in interviews this year, and we value the opportunity to help drive forward their future strategies and investments.

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Percentage of interviews by region

57%

60%

36%

9%

40%

INTERVIEW INFORMATION

135 retail banking clients

Percentage of interviews by role

United Kingdom

North America

Europe

IT leaders

Business leaders

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CLIENT INSIGHTS

INDUSTRY TRENDSRegulation and security rise in importanceIn 2018, the retail bank executives we interviewed said more emphatically than last year that addressing regulatory compliance and security risks has become their most pressing issue as they advance their digital transformation agendas. The impact of regulations and cyber threats has grown steadily, and both were cited as top global trends this year.

Following closely as a top concern is the strain that digital demands are placing on legacy infrastructure. This dynamic has increased significantly since last year. Increasing customer adoption of digital channels, followed by the evolution of open banking, round out the top five trends. Omni-channel demand for personalized services, which tied last year with regulatory compliance for the top trend, now ranks sixth.

While European and North American banks are broadly in alignment on these top trends, Europe is driven more strongly by regulation, including regulatory schemes such as SEPA, PSD2 and GDPR.1 Compliance has become a key prerequisite to transformation, dictating the order of events. In North America, the focus is more on digital adoption and personalized service, as banks move aggressively to improve their digital maturity to deliver more competitive offerings.

1 Single Euro Payments Area (SEPA), Revised Payment Services Directive (PSD2) and General Data Protection Regulation (GDPR)

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CLIENT INSIGHTS

2017All responses

All responses North America Europe

1

Mounting regulatory and control reform/burden 91%

88%93%

78%

2

Growing threat of cyber and other financial crimes 90%

92%90%

71%

3

Digital transformation demands straining legacy banking infrastructure 89%

92%87%

62%

4

Increasing customer adoption of digital as primary channel 88%

92%86%

64%

5

Highly competitive and evolving open banking market 87%

88%86%

74%

2018 top trends

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CLIENT INSIGHTS

BUSINESS PRIORITIES

2018 top business priorities

All responses North America Europe

1

Protecting the bank and clients from regulatory risk and financial crime 93%

100%90%

69%

2

Accelerating digital customer-facing transformation programs 91%

100%86%

80%

3

Improving customer experience to increase loyalty and drive revenue 91%

94%90%

80%

4

Driving customer and business insights from data and analytics 87%

94%84%

56%

5

Acquiring digital talent and changing the culture to combat competition 83%

85%82%

58%

Protecting the bank dominatesGlobally, for the retail bank executives interviewed, the journey to become truly digital continues. Delivering customer-facing digital transformation remains a top business and IT priority as in 2017, but regulatory risk and financial crime have moved ahead to take the number one spot. There also is a strong sentiment in both the business and IT priorities that data insights will be critical to improving bank performance and driving value. In addition, executives believe recruiting top digital talent is a must for success, along with transforming their culture for the digital age.

We asked both business and IT leaders to give their perspective on business priorities. One area of interest is that the most commonly identified business priorities differ significantly among IT leaders compared to business leaders. For example, among IT leaders, the top business priority is to accelerate client-facing transformation programs, while business leaders more commonly chose three other priorities.

Business priorityBusiness leaders

IT leaders

Protecting the bank 91% 95%

Accelerating digital customer-facing transformation 81% 98%

Improving the end-to-end customer experience 94% 89%

Driving actionable customer and business insights 91% 85%

2017All responses

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CLIENT INSIGHTS

IT PRIORITIES

2018 top IT priorities

All responses North America Europe

1

Safeguarding the bank— regulations and cybersecurity 90%

94%87%

77%

2

Automating business processes 89%

88%90%

78%

3

Aligning IT capability with the business for agile, faster delivery 87%

92%85%

66%

4

Building platforms and capability to drive actionable insight from data 85%

83%86%

69%

5

Delivering client-facing digital transformation 84%

85%84%

74%

In addition to protecting the bank and its customers, a top IT priority is automating processes to improve service and efficiency. Aligning IT with the business for more agile and rapid delivery jumped to the third cited priority (89% this year, compared to 66% last year), with a clear focus on ensuring systems are both cost efficient and suitable for the new “real-time” era. Developing platforms to enable better data insights and reducing the burden of legacy systems also are top-cited priorities for supporting transformation agendas.

Cybersecurity and data privacyIn 2018, cybersecurity and regulation figure prominently among business and IT priorities, increasing in frequency across all industries. In retail banking, 73% of executives interviewed are focusing on employee training and awareness as the most common response in this area, followed by testing and verification of response capabilities (72%), and identifying critical assets for management and control (70%).

2017All responses

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CLIENT INSIGHTS

14% 22% 17% 22%

16% 24% 20% 19%

9%

10%

16%

11%

DIGITAL MATURITYStrategies start to take holdThis year, 87% of retail bank executives interviewed have a defined digital transformation strategy. Of these, 53% are launching, have operationalized or are realizing results from a strategy that includes their ecosystem partners, while 60% are at similar stages with internally focused enterprise strategies.

Stage of digital transformation strategy implementation

For the entire enterprise extending to our external partners and suppliers

For the entire enterprise, with a scope focused on the internal organization

OtherDon’t knowProducing results Operational Launching Building

Top challenges 2018 2017

1 Cultural change and change management 89% 81%

2 Technology/legacy/agility constraints 83% 65%

3 Regulatory and compliance concerns 79% 65%

4 Cybersecurity concerns 72% 47%

5 Digital customer experience design 52% N/A

Cultural change and change management remain a top barrier to digital transformation, with some regional differences. Ninety-one percent of North American executives cited cultural change and change management as their top barrier, for example, while 87% of European executives cited regulatory compliance as their top challenge.

Interviewed executives provided more than one response.

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CLIENT INSIGHTS

27% 16% 24%

Robotic process automation (RPA)

5%18%

50% 16% 4%

Artificial intelligence (AI)

15%

CIO and lines of business jointly

empowered

Separate innovation group

CIO

Team or role primarily responsible for driving transformation

70% 44% 44%

To reduce costs and address legacy constraints, retail banks are aggressively employing robotic process automation, which is becoming a mainstream technology. They also are exploring chatbots and intelligent agents to help them deliver better customer service through personalized experiences and offers. However, the majority of banks are still investigating artifical intelligence and how best to use it.

This year, fewer retail bank executives are investing in separate innovation groups (44% compared to 68% last year) as innovation becomes mainstream and an integral part of the business. Seventy percent are jointly empowering their CIOs and lines of business to drive digital, while 44% are driving it through their CIO office.

Investigating Implementation in progress Implementation done Not for us OtherProof of concept

Stage of technology transformation

38% 22% 10%

Algorithmic automation

13% 15%

2%

2%

Interviewed executives provided more than one response.

13%

10%

DIGITAL MATURITY

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CLIENT INSIGHTS

INNOVATION SPENDINGInvestments move from omni-channel to automation and analyticsRetail banking executives interviewed report flat budgets for operations and maintenance in 2018, but a 5% increase in investment in new applications and infrastructure. With innovation investments closely tied to IT and business priorities, security is the most frequently cited investment item, along with process automation, agile IT delivery and infrastructure, and predictive analytics. Automation and agile IT delivery, like security, are becoming a “business as usual” spend.

Planned investments in innovation

Over the next 3 years, 55% of executives interviewed estimate a total new investment in IT of $125 million or more. As banks experience the payoff of their omni-channel and front-end investments, they will tackle the next stage of transformation, which includes addressing legacy IT constraints through process automation and artificial intelligence supported by predictive analytics and data.

Now Within 3 yearsSecuring the bank and its customers

86% 84%

Process automation

82% 84%

Agile IT delivery and infrastructure

82% 77%

Predictive analytics and artificial intelligence

71% 86%

Omni-channel customer management

76% 69%

FinTech partnerships and open API banking

75% 73%

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CLIENT INSIGHTS

BENCHMARKING IT SPENDING PATTERNS

The CGI Client Global Insights offer a wide range of benchmarking capabilities to support clients with their business planning. For example, in the area of IT spending, we asked retail banking executives to estimate their IT spend as a percentage of overall revenue. The average of their responses indicates that IT spend represents 6% of revenues. Average IT investment percentages of revenue in this sector are similar to other banking sectors, such as corporate and transaction banking, and are well above the overall average of 4% across the industries we examined.

Drawing on more than 1,400 interviews across 10 industries, the CGI Client Global Insights offer numerous benchmarks, including client priorities, investment plans, innovation activities, digital transformation, cybersecurity and data privacy practices, human capital and more. This data can be compared among peers and across industries and geographies. Through our client engagements, we draw upon these benchmarks to support the development of their strategies and publish CGI Perspectives to share the findings.

Total estimated IT spend as a percentage of overall revenue or budget

Retail banking

Corporate and transaction banking

Central and federal government

Overall average

Communications

Manufacturing

Retail and consumer services

Transport and logistics

Utilities

6%

6%

5%

4%

4%

3%

3%

3%

3%

Data excludes answers where the respondent did not know or could not answer.

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CLIENT INSIGHTS

All industries 5.9

All banking 6.0

Retail banking 5.9

All industries 6.7

All banking 6.0

Retail banking 5.8

All industries 5.7

All banking 7.3

Retail banking 7.2

All industries 7.0

BENCHMARKING SATISFACTION WITH THE INTERNAL IT ORGANIZATION

This year, business and IT executives interviewed ranked their satisfaction with their own IT organizations based on 10 key attributes of a world-class IT organization, providing a comparative view of business and IT satisfaction both within and across industries. In the Perspectives section of this report, we share how this data helps retail banks measure and benchmark their progress toward building a world-class IT organization.

For retail banking, business and IT satisfaction scores are remarkably consistent. Satisfaction scores also are above the global average, and at or above the banking industry average for the most part. On a scale of 1 to 10, however, rankings of 6 or 7 reveal opportunities for improvement.

Business leader satisfaction vs. IT leader satisfactionScores from 1 to 10, with 10 most satisfied

Running a secure IT environment and ensuring data privacy

Delivering projects on time and on budget

Consistently introducing applicable innovations for the business

Having in-depth knowledge of the company’s business domain

Business leaders 7.0

IT leaders 7.4

Business leaders 5.6

IT leaders 6.1

All banking 6.7

Retail banking 6.6

IT leaders 7.0

Business leaders 6.1

Business leaders 5.9

IT leaders 5.8

CGI can provide clients with a discussion of all available benchmarking, including each client’s positioning, on topics such as digital maturity, IT budgets, IT satisfaction, innovation investments and more.

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CGI PERSPECTIVESIn this section, we present CGI’s viewpoints on the insights retail banking executives provided this year.

INDUSTRY TRENDSSecurity and regulatory concerns rise, while open markets are front of mindSecurity is the number one issue facing retail banks. As trusted guardians of their customers’ money, the industry has been synonymous with safety and soundness. However, in a digital world, the ever-increasing and shifting nature of cyber attacks challenges this long-held sentiment.

The introduction of real-time payments and transactions along with open banking exacerbate the issue. In seconds, entire networks can be compromised, credentials stolen and money fraudulently transferred.

The banking industry, while individually pursuing competitive advantage in offered products, also recognizes great value in sharing fraud data and cybersecurity information, versus individual banks, large and small, fighting bad actors on their own. In addition, the competition to hire and retain cyber experts is fierce. We see great potential for the retail banking industry to establish cross-industry alliances to share information and tactics and, subject to regulatory approval, operate shared services to combat security threats through best practices and state-of-the-art technology. Some banks are starting to entertain the idea of organizing exchanges and collaborative groups with each other to improve their security intelligence, detection and response.

We also see a shift in how the open banking market is perceived by banking executives. This is reflected by the fact that an increasing percentage of retail banks have a digital strategy in place that involves their ecosystem partners. FinTechs are now viewed more as partners than competitors, with new competitive threats from large technology firms and e-commerce giants in North America and around the world. The relationship between banks and FinTechs is changing as we move more into open banking where FinTechs will play a critical role in banks’ strategies.

Banks are facing the challenge of legacy IT, which we have termed “digital drag,” and this threatens to delay the next stage of digitalization. This challenge is reflected in the innovation investment data, which shows automation as a high-ranking area for investment, as outdated IT needs to be improved to gain process and efficiency improvements.

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CGI PERSPECTIVES

BUSINESS AND IT PRIORITIES

Securing trust and staying relevantBoth business and IT leaders are laser focused on protecting the bank and its customers from fraud and cyber crime. Banks depend on trust and, in a fully digital world, trust becomes a key attribute of banking, one that must be preserved to retain customer loyalty. The threat of security breaches will become only more pronounced and, with the move to open banking and real-time transactions, vulnerabilities will extend beyond the traditional boundaries. Bad actors are increasingly sophisticated, and banks must respond, collaborating with ecosystem and security partners to deliver the required expertise and solutions.

As customer demands for better experiences and instant gratification continue to rise, partly driven by experiences outside of banking, business executives remain focused on the end-to-end customer journey. In response, IT is using process automation to deliver better experiences at a more rapid pace and at lower costs. However, the

“digital drag” from legacy IT hinders progress.

As a result, leading banks are recruiting top digital talent (or partnering to get it). Yet the battle for talent is intense, leading to an even greater focus on an ecosystem of partners.

Given these profound changes, we expect many banks to evaluate not only the next stage of the journey but also to better align their digital strategies and transformation programs. Next year, we fully expect banks to question whether they are receiving the returns they anticipated from these efforts.

Data will play an increasingly important role as banks seek to become more relevant in customers’ lives and offer highly personalized experiences and products. Banks have rich data that, when unlocked through analytics, provides powerful insights into customer life events, leading to the development of event-specific, value-add products and advice.

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CGI PERSPECTIVES

DIGITAL MATURITY

More strategies extend to ecosystemsNow that most retail banks have digital strategies in place, the next focus is on extending those strategies to their partner ecosystem. This is a necessity given the potential or implied impact of open banking on the industry.

As banks move forward with their transformation, they are expanding partner ecosystems accordingly.

In driving transformation across the enterprise and ecosystem, there remains a continuing shortage of digital leaders and a need to hire more of them. Executives also face key challenges with cultural change and change management — both were cited as top barriers to digital transformation — as they seek to introduce new ways of working, increase collaboration and introduce new technologies across the organization.

In addition, banks are focused on leveraging automation, advanced analytics and artificial intelligence to speed up the transformation process and provide support and intelligence for the customer journey.

In addition, customers want innovation, personalization and better experiences, so leading banks are either supplying or partnering to supply new services to meet this demand.

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CGI PERSPECTIVES

INNOVATION SPENDING

Protecting the bank, increasing agility Indicative of the top trends and priorities for retail banks, security has become a key investment driver, along with digital transformation, regulatory compliance and data analytics. Security is the most frequently selected area of innovation investment this year and will continue to dominate as banks navigate ever-more complex ecosystems and real-time environments.

The pressure continues to keep maintenance and operational costs flat-to-declining to provide incremental funding for new investments. Additionally, as agile and DevOps practices grow, budget lines become blurred.

While omni-channel remains the top digital initiative for banks globally, currently it is slipping in the trend rankings. In particular, investment in omni-channel innovation is expected to decrease in the next three years, while investment in data innovation and using data better are expected to increase. There has been a heavy investment in digital channels as the first wave of digitalization, and banks across the globe are now expecting to see those investments pay off.

As IT departments feel the pain of legacy IT and “digital drag,” innovation investments in automation and agile continue to be frequently chosen investment options.

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CGI PERSPECTIVES

PROGRESS TOWARD WORLD-CLASS IT

Today’s enterprises need world-class IT to compete in an increasingly digital worldWhen there are gaps between business and IT executive expectations, advancing the transformation agenda is challenging at best. To become a top-performing enterprise, there should be continuous interaction between the business and IT sides of the organization that focuses year-over-year improvement efforts on key attributes of successful IT operations. CGI asked 1,400 global leaders about their satisfaction with the 10 attributes that define a world-class IT organization, providing a benchmark among industry peers and a foundation for continuous improvement. The resulting insights identify ways clients can bridge the gaps and align satisfaction.

Across the board in retail banking, we see strong alignment between business and IT — unusual compared to other industries and echoed in the fact that 72% of retail banking clients interviewed say their CIO and business lines are empowered jointly to deliver their digital transformation agenda.

However, we do see a gap in satisfaction levels among business and IT leaders in the areas of IT service delivery and IT knowledge of the business domain. The IT side has an opportunity to fill this gap through increased on-time, on-budget delivery and a greater understanding of the organization’s market drivers, competitors and strategies.

Bank products already are largely virtual, and IT has become more than just an enabler of business — it’s now an intrinsic part of it. Business and IT share the same digital journey, which reinforces collaboration.

ABOUT CGIFounded in 1976, CGI is among the largest IT and business consulting services firms in the world. Operating in hundreds of locations across the globe, CGI delivers an end-to-end portfolio of capabilities, from IT and business consulting to systems integration, outsourcing services and intellectual property solutions.

In the retail banking sector, we have a long and successful delivery track record and offer a full spectrum services and solutions in the areas of digital transformation, automation, security and risk management, legacy modernization, payments, predictive analytics and cloud computing.

CGI works with clients through a local relationship model complemented by a global delivery network to help clients digitally transform their organizations and accelerate results.

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