Outsourcing company Auriga, which provides software and IT consulting services, has published the study “How can banks balance digital transformation with it costs?” Banks.am presents several key points from the report.

Huge investment

Digital transformation implies huge investment. According to research company Ovum, the top 1,000 retail banks spent USD 124 billion on IT in 2018 alone. While traditional banks are right to continually improve their IT, how can they do it in a way that doesn’t overstretch their budget?

Growing competition in banking is understandably putting pressure on traditional players to transform. But why are they spending so much? Costs associated with continuing compliance with rapidly and regularly evolving regulation is of course one driver.

Another major reason is that banks recognize the need to remain on the cutting edge of technology in order to remain competitive.

Making every purchase worthwhile

It is unsurprising that traditional banks are willing to invest such large sums in their IT systems. Consumer habits and expectations have evolved drastically over the past five to ten years, creating a market in which challenger banks such as Monzo and Starling, who have developed highly customer-centric and mobile-friendly models of banking, can thrive.

And with the rapid development of new technologies making it possible for legacy banks to offer app-based solutions, just like their fintech rivals, financial institutions are becoming more inclined to invest with a view to offering customers improved service and experience.

Innovation continues to drive technological advances in the financial sector, and of course, banks should explore innovative new solutions, but they should also keep an eye on costs and ensure every purchase is worthwhile when investing in IT systems.

The universal trend of banks investing in the latest hardware and software is unlikely to slow down any time soon – there is no end in sight.

Banking hubs

It might be necessary to streamline the branch network but banks should always be thinking creatively about how they can serve their customers in other ways, for example by creating “banking hubs”.

This model is already established here in the UK: Lloyds Banking Group, Royal Bank of Scotland, and Barclays recently opened their first banking business hub in Birmingham.

These hubs offer small and medium-sized businesses more flexibility in running their day-to-day operations, such as managing large bank transactions from more than one provider, at a one-stop shop.

White label branches and ATMs

Retail banks could economize in the same way, by sharing branch and location costs with white label bank branches. This would also provide a seamless customer experience for those from a variety of bank providers, as it means that they can visit a local branch and take advantage of the whole range of services provided by their bank, for which they would normally be required to travel to the nearest “legacy” branch.

“White label” ATMs, frequently owned and operated by non-banking establishments, can also offer an alternative for banks looking to lower costs

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