Competitive banking report stresses importance of digital transformation

By Edward Ireland, Head of Commercial Product Management – Financial Messaging, Bottomline

As 2023 and all its economic volatility closes out, one thing is certain for the UK’s banking sector: digital transformation. The term has gone from an industry catchphrase to an urgent agenda item for 2024. Banking executives must create and maintain their digital infrastructure to remain competitive, or risk losing customers and revenue. It’s a risk not worth taking. Financial institutions have very busy roadmaps, steered by key industry initiatives from ISO 20022 to domestic and cross-border real-time payments, fraud mitigation and cash flow management. And the pressure to deliver these with speed and operational efficiency is causing pain and concern.

The evidence for this is in the data.

The recently released “Future of Competitive Banking Report” shows cause for concern on the digital transformation issue. But it also points toward a strategy that can restore confidence in an area of banking that sorely needs it. Questioning more than 600 finance leaders about their confidence in their digital transformation strategy, 77% of respondents said they were “highly” or “somewhat” confident. That is a good number and bodes well for the competitive set of banks, although “somewhat” confident (38%) should be higher. More concerning is the 23% who said they were “somewhat” or “highly” sceptical about their digital transformation strategy. To convert the “somewhats” into “highly confident,” the following three strategies are designed to bake digital transformation into any innovation roadmap:

Edward Ireland

Migrate to the cloud: This is essentially the foundation of any worthwhile digital strategy, yet respondents to the survey expressed mixed commitment to migrating to the cloud. Thirty-eight percent rated their appetite for cloud migration as strong or extremely strong (22%). More concerning is the 40% who rated that commitment as weak, none or not sure. With the New Payments Architecture (NPA) initiative coming online in the next couple of years and its expected regulations around instant payments, migrating to the cloud will be essential. From a data perspective, cloud computing offers advanced analytics and big data capabilities. Banks can leverage these tools for real-time data processing and analysis, leading to better customer insights, personalised services, and informed decision-making. The cloud also facilitates rapid deployment of new applications and services. Banks can quickly introduce innovative products and features, which goes a long way toward staying competitive.

Prioritize ISO 20022: Most UK bankers will think “mandates” when they see ISO 20022, thanks to the pressure of hitting the March 2023 connectivity deadline. But it would be best for them to think of “business outcomes.” 39% of survey respondents said some transformation work will be necessary to take full advantage of ISO 20022 data and messaging. Only 29% said their infrastructure will be ready for ISO connectivity and market readiness. However, those respondents may not have grasped its effect on their entire internal ecosystem. Operations and treasury will see a reduced workload with ISO 20022 data due to increased compliance and lower risk scoring. This means fewer false-positive hits and lowers the chance of missing a cut-off time for a payment mechanism.

ISO will improve mandated connectivity for banks to send and receive ISO 20022 messages more efficiently. Banks can process data and messaging without affecting resources by addressing gaps such as new network providers, API options, instant payments, and Request to Pay. Once banks reach the third level of market readiness, they will enjoy benefits such as real-time payments and settlements, lower costs, better transaction tracking and process monitoring, transparency, and improved payment-system stability.

Deliver real-time, cross-border payments: The UK has already introduced domestic instant payments, and cross-border instant payments are coming soon. However, only 29% of financial institutions are equipped to send and receive real-time payments. Fourteen percent say they have completed preparation, and 48% are yet to start preparing. But there is no escape. Customer expectations will push unprepared institutions to catch up. The new EU instant payments regulations will also accelerate the timeline for instant payments within the Eurozone and guarantee pricing parity with standard transactions.

The Competitive Banking report shows that legacy infrastructure and interoperability issues are the main obstacles to digital transformation. To overcome these challenges, FIs should migrate to the cloud and adopt the ISO 20022 messaging framework. Such solutions offer flexibility, efficiency, and scalability, making them future-proof and capable of handling changes in an ever-evolving  global financial landscape. In short, digital transformation is essential for competing in the future. Don’t get stuck in an analogue past.


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