Digitisation is arguably the largest catalyst of transformation the banking industry has ever encountered. As banks compete to remain profitable against a host of sophisticated financial institutions, they have been prioritising technology implementation to improve the bottom-line.

Technology in recent years has transformed how banks serve their customers — from online banking to digital branches. However, customers are not the only ones benefiting from the digital banking revolution. We have seen banks turn to technology when faced with the additional capital, resources and, ultimately, costs that traditional, paper-heavy processes require.

By digitising the process, banks are witnessing increased productivity, enhanced profitability, reduced costs, and seamless banking operations. According to McKinsey, the operational areas that are highly correlated with profitability when digitised are product back-office automation, digitisation of document management and automation of credit decisions, and big data analytics applied to sales campaigns.

“Open” banking

Therefore, technology implementation and acquisition has been afforded a significant portion of banking agendas and budgets. In fact, according to McKinsey, the global banking sector spends 4.7-9.4 per cent of operating income on IT processes and machinery. Subsequently, these institutions have reaped large returns on their investments, which reinforces the correlation between introducing technological advancements to banking processes and an enhancement of financial performance.

Banks can create new value propositions for their customers that are either banking or non-banking adjacent. Banks that are quick to adopt an open banking strategy and integrate third-party services within their offerings will ultimately be well-placed to secure a sustainable flow of revenues in the future.

Ramp up integrated services

Likewise, providing integrated services alongside non-banking entities can result in an increase in engagement, a rise in consumer base and, ultimately, a growth in profits. Banks can enable customers access to their services through a digital platform or partner with entities “on GAFA” to migrate revenues to new experiential streams.

An example of this is Standard Chartered’s recent partnership with Apple Pay. Through this, we allowed customers in the UAE to set their Standard Chartered credit or debit card as the default payment method on the application — which is compatible with most Apple products — for increased convenience and security. Through this partnership, not only have we have furthered our objective of providing advanced, convenient offerings to our customers, but, as a bank, we’ve been able to access a wider audience of digital-based consumers.

Although costly, prioritising the digitisation of banking processes is likely to serve as an effective measure towards efficient expenditure within all sectors of bank operations and is being adopted by many institutions in the Middle East. A study carried out by McKinsey suggests that a bank with a balance sheet of $250 billion could capture as much as $230 million in annual profit, of which just over half derives from cost efficiencies.

Better use of human resources

Automation of standard, back-office operations can allow banks to realise large operational cost savings and enables them to place human capital on more strategic functions. According to Accenture, transforming a bank’s private model to a cloud-based model is estimated to save the average large investment bank 11 per cent in run-rate costs.

Moreover, difficult tasks that are rooted in non-structured data systems can be automated using AI and will usave on the costly and lengthy execution these tasks require. Efficient cost-cutting strategies are on the rise in the Middle East, as according to KPMG, banks in the GCC are looking at more sophisticated ways in which costs can be managed using robotics, analytics and fintech.

Advancements in fintech allow banks to retain their current customer base and access a larger audience, specifically those who are unbanked. Accenture estimates that providing unbanked adults and businesses access to the formal banking sector could generate about $380 billion in new revenues for banks. Implementing strategic actions that enhance financial inclusion via digitisation is directly correlated with higher profitability and financial performance.

However, risk management is a highly volatile and expensive operation which digitisation may appease — as banks have long paid the price of risk exposure. According to Bain, major banks have suffered nearly $210 billion in operational risk losses since 2011.

Handling risk

Technological advancements in risk reporting and analysis contribute to the consolidation of data and enables a seamless pathway to extracting information from various sectors of the organisation. Big data, machine learning and crowdsourcing serve as efficient tools when considering faster and cheaper approaches to efficient risk mitigation.

Specific functions that will greatly benefit from these advancements include credit risk decision-making, portfolio monitoring, detection of financial crime and operational loss prediction.

In short, technological advancements and digitisation offer banks a valuable opportunity for the enhancement of their profitability, productivity and financial health. Through integrated operations and strategic partnerships, banks can create new revenue streams.

The evident rise in bank operational costs have been and will continue to be moderated through the utilisation of various digital functions. Introducing digital advancements to risk mitigation functions establishes increased accuracy, efficiency and improvement of a bank’s operational losses.

We have been working with various industry partners and fintechs to explore the use of innovative technology to make financial systems more efficient and accessible for its clients. Technology also enables the bank to facilitate trade and investment across its footprint markets, improving client experiences and offering new services.

Mohamed Abdel Bary is Regional CFO at Standard Chartered AME.