Over this series of articles, we have dug into the investment priorities and strategies of more than 150 technology decision makers at almost 70 UK institutions, focusing on the opportunities and challenges raised by our comprehensive UK banking and capital markets technology survey. In this final article, we consider how institutions should respond, finding that, against a backdrop of rising budgets, the institutions best placed to succeed in their transformation efforts will be those that continue to invest in data, embrace change as a constant and connect their strategies to the customers and cultures that make them strong. By transforming in not one but three ways, banking technology decision makers will be able to maximise the impact they make with their enlarged budgets, positioning their organisations to transform effectively. In this way, we believe, banking technology leaders can solve the paradox of plenty.

In the wake of the global pandemic, the pressure on decision makers to utilise resources judiciously has only intensified, as firms seek to move beyond post-COVID stabilisation back towards profitable growth. In the first article in this series  we argued that rising budgets and rising pressure together presented a “paradox of plenty” as banking technology leaders looked to deliver impact in the face of a range of issues. Having explored these in some detail, we now turn to look at precisely how banks should address these challenges, offering a series of actionable recommendations to help solve the paradox.

Most of the technology leaders we surveyed told us they would be seeking to make a positive impact through investments that delivered enhanced customer experiences, reduced costs, and delivered data to support better, insight-driven decision making. Whether in support of greater product personalisation, deeper automation, or business intelligence, we believe banks should continue to relentlessly prioritise their data spend. Data projects currently soak up around three-quarters of available budgets across cloud, analytics, open banking, and AI. And an ongoing commitment is needed here to deliver the mature data platforms required to support potentially transformative opportunities like Generative AI.

However, having the right investment strategy will not be enough on its own to deliver success. Against a backdrop of macro uncertainty, technology leaders also need more robust and compelling ways to evidence their impact to lock in senior sponsorship and future budgets. They also need to connect their technology spend to the needs of the banks’ customers as well as the underlying culture of the organisation, both of which will be crucial in delivering successful transformation.

1. And so, as we close the loop on this initial series of articles, and set the stage for our future thinking, we turn to the tricky question of precisely what UK banking technology decision makers should do, both to seize the opportunities arising from our research, as well as to address the challenges exposed. In doing so, we focus on three key areas:
2. From a practical standpoint, how should banking technology leaders think about the potential impact of macro trends on their budgets and how best can they evidence the value their technology investment strategies deliver?
3. Then, from a strategic standpoint, what specific activities should banks be prioritising when it comes to data, particularly in light of the opportunities presented by generative AI?
4. And finally, from a holistic standpoint, what are the benefits of connecting a technology investment strategy into the purpose and vision of the wider business, and what are the potential pitfalls of not doing so?
    

 Banking on budgets
 

 As noted in our previous article, while survey respondents were bullish on the outlook for their budgets, they were also keenly aware of the potential disruption that could arise from external factors. Chief amongst these was the market environment, which respondents ranked as the joint #1 leading barrier to delivering targeted outcomes. Rising budgets are made possible by rising profits and, as macro conditions continue to evolve around them, banking technology leaders need to remain aware of the continuing role of interest rates on their banks’ economics.

Rising UK interest rates boosted net interest margins (NIMs) across the sector in 2022 and 2023. The Bank of England base rate has been steady, at 5.25% since August 2023, with the Bank signalling the likelihood of a gentle decline over the next 12 to 18 months. Added to this, increasing pressure from policy makers on banks to pass higher rates on to depositors has further narrowed the so-called positive jaws between interest income and interest expense. Going forward, some market analysts expect UK banking NIMs will flatten, with rates falling by as much as 15-20 basis points by the end of 2025 . This, in turn, could signal an end to rising levels of margin-driven banking income.

So, what is to be done? Against this backdrop, attention may fall on how wisely banking technology decision makers have invested the windfall of previous quarters. And, since bigger budgets cannot be taken for granted, technology leaders must also do all they can to ensure they make the best use of their available resources now, balancing their requirements with the economic constraints imposed by their CFOs. And, unlike the big tech companies they increasingly compete with, banks are not as well positioned to engage in bold concepts like ‘moonshots’ and ‘fast failure’ to deliver innovation. Instead, bank technology leaders need to deliver innovation, evidence achievements and demonstrate returns in a measured and deliberate fashion.

 Measurements that measure up

 Returning to the themes explored in our previous article the issue of measurement is paramount in this context. While the technology leaders we surveyed are clearly measuring the impact of their efforts on the bank in a number of dimensions, with our research pointing to revenue gains, cost savings and productivity as the most popular metrics tracked by our respondents, the question is whether these performance indicators really measure up to the task?

As our recently published research on the theme of digital transformation metrics makes clear, it is essential for these leaders to generate a full picture of their performance by reaching across a broad spectrum of value KPIs, blending common and more novel measures to see the full spectrum of delivery across the bank. These, in turn should be rooted in a clearly defined measurement framework that helps technology decision makers to demonstrate precise impacts from their efforts.

While our global research digs into these concepts in far greater detail, suffice it to say that there is plenty of latitude for banking technology leaders to improve their situation. For example, a more planful and balanced approach to measuring impact could encourage the use of less common and potentially more relevant KPIs for the bank. These might include novel impact metrics such as talent mobility, digital drop-out rates, and sustainability impact. This, in tandem with measures to remove barriers to value measurement, such as organisational data silos, as well as investments in reliable mechanisms to predict the downstream ‘ripple effect’ of technology change, can help to transform the process of measuring and communicating the impact on the bank of a technology investment strategy, converting it into a less troublesome and more meaningful exercise for all concerned.

 Data, data, data

 As mentioned already, data is by far the most important investment area for UK banking and capital markets institutions, and arguably has been for some time given the well-known scale and cost benefits associated with automation and cloud-based data. Yet, despite years of innovation in these areas, data remains far from being a solved issue for most institutions. As we saw in our earlier article when asked to describe the maturity of their technologies, 40-60% of survey respondents told us they were still only evaluating or piloting projects in these critical areas, underlining just how far the sector still needs to go.

Recent work by our US colleagues points to a similar trend, where an ‘innovation gap’ is preventing US banks from fully utilising their data. Factors such as data quality, availability and a lack of technical expertise are called out as key barriers in that study. And, when looking at our UK results, in particular those concerning engagement with Generative AI , we see some striking similarities.

Notably, when asked about the impact their Generative AI programmes would have on spend across their organisations, the vast majority of respondents called out the need for moderate or major additional investment across a wide range of areas. These included non-generative AI activity and enhanced data management as well as cloud infrastructure, cybersecurity, training, recruitment, ethics, and compliance. In short, as Figure 1 shows, spend is needed across the map if UK banking and capital markets institutions want to fully embrace the opportunities presented by the latest wave of data-driven innovation.

 Figure 1: UK banking and capital markets institutions recognise the need to spend more on data, training, and security as part of their Gen-AI journeys.

Beyond these data challenges, some survey respondents also described difficulties in achieving their core objectives. It is notable that in our sample, just 13% of those surveyed – 20 of our total panel of 151 respondents – had fully implemented projects in these key data areas. Within this group, two-thirds confided they had achieved only 50% to 75% of the value they were anticipating from their efforts. There were a number of reasons for this, with challenges including the difficulties of navigating sub-optimal internal processes, in measuring the impact of their activities, as well as in dealing with outdated, inflexible legacy technology, which is a longstanding and familiar brake on innovation for many financial institutions.

In addressing this lack of transformation success and taking into account the recommendations already made concerning better measurement and the focus on data, what else can banking technology leaders do to improve their strike rate and extract as much value as possible from their technology investment strategies? The answer may lie in the way transformation itself is conducted.

 Three transformations in one
 

Successful organisations are typically those that can pivot and respond to the changing needs of their customers. As we saw in our previous article delivering enhanced customer experiences was the chief investment objective of the banking technology decision makers we surveyed. Nevertheless, while the right technology can help deliver required change, this needs to be grounded in a wider view of the business in order to make it realistic and relevant.

Firstly, technology change of any kind should be rooted in the needs of clients and customers. This means outstanding channel experiences, for example, but also extends to the tools and mechanisms used to monitor and adapt to customer trends, as well as enabling the evolving propositions needed to consistently attract and retain them. This ability to enable customer-centric change is critical as retail banks, for example, explore ways to evolve their existing balance-sheet driven products to deliver more innovative propositions. These can better reflect the financial needs of their customers, be they for more sustainable or purpose-led products or offerings that are fungible with other third-party experiences as part of the shift to open banking, which we also explored in a previous article. Without regard to customer centricity, a disconnected technology investment strategy could simply entrench old ways of working more deeply, making required change even harder to achieve down the line.

Then there is the question of culture. A successful technology investment strategy should be deeply connected to the culture of the wider organisation it addresses. And the culture itself should also be customer centric in nature, embracing the needs and satisfaction of customers and clients as key elements of purpose and vision. From a technology standpoint, this could include tools to help embed training around new ways of working that mesh with the people and cultural priorities of the institution, solutions to empower employees to deliver better service for customers and clients, as well as enabling data to be used to support the engagement of the workforce with the firms’ wider cultural priorities, including a deeper understanding of customer needs.

Some of this is reflected in the factors we found were driving strategy – especially in terms of the high priority given to helping banks keep pace with innovation and better serve their customers – as well as in the outcomes targeted. For example, it is easy to draw a line connecting more investment in business intelligence tools to the generation of actionable customer insights, as well as the focus on data in areas like AI and analytics that supports the elimination of “busy work” in key areas of the institution, permitting teams to focus on more enriching value-added tasks.

In short then, delivering a successful transformation requires a holistic approach, one that anticipates and adapts to the changing needs of the banks’ customers and the wider market in which they operate, as well as the culture of the organisation to ensure change beds in and resonates with the wider workforce. Banks favouring this approach stand a better chance of galvanising stakeholders around a set of enterprise technology objectives that will hit right across the bank.

While there are a larger set of considerations beyond technology when it comes to achieving transformation success , taking these fundamental elements into account will ensure banking technology decision makers achieve more of the value they are targeting while minimising the risk of failure.

 What next?

 So, as a banking technology decision maker, based on the findings outlined across these five connected articles and the recommendations above, what comes next when it comes to solving the paradox of plenty? To ensure they have the greatest possible chance of delivering the most impact with their investment strategies, we propose three immediate actions for banking technology leaders to consider:

1. Firstly, from a practical standpoint, implement leading practices for tracking and delivering transformational change. The research and taxonomy of forty-six digital value KPIs we discussed earlier in this article is one of many resources that technology leaders can use to better track the real progress and value delivered by their transformation efforts. Getting measurement right will ensure the expectations of leadership are managed effectively. It can also help to eliminate nasty surprises down the line by better equipping technology leaders to dynamically change course as needed. In the same vein, in setting a bold, holistic transformation strategy, decision makers will be better positioned to challenge the obstacles to success – from sprawling buying committees to overly complex internal processes – that interact to slow down progress. In doing so, firms can once again begin to lift their expectations of what transformation can really achieve when done right.

2. Next, from a strategic standpoint, ensure all key technology investments are aligned with the context of the wider organisation. That means a broad discussion with all relevant stakeholders concerning the enabling technologies, customer needs and people and culture of the organisation, with specific consideration of the following factors:

a. From a technology standpoint, what fundamental challenges need to be addressed before the institution can move forward on data? This will include any legacy technology or technical debt piled up during the early years of development dragging on the firm’s ability to innovate, as well as an honest discussion around where and how innovation takes place within, favouring impactful approaches that will deliver measurable gains.

b. Next, consider the customer and client context around the technology investment strategy. How does it help to address the immediate issues preventing the institution from fully meeting their customers’ needs? This will likely involve going beyond transaction analysis to prioritise data-driven tools to help them better understand the fabric of their customers’ financial lives and build propositions to more effectively support them.

c. Consideration also needs to be given to the culture of the organisation. This includes looking at whether the culture itself is configured to support innovation and how technology can support beneficial culture change. This angle was touched on in our previous article where we concluded no ‘one-size-fits-all’ approach to innovation exists. Instead, firms must choose the model that best suits their individual needs. And this is where culture can play a crucial, reciprocal role. For example, when it comes to establishing norms around moving on from ideas that aren’t working, as well as the controls and measures needed to rapidly define and evaluate innovation success, allowing for swifter course correction.

3. And finally, use this holistic strategy to inform the way that transformation itself is implemented, addressing all three transformation pillars – technology, customer and people and culture – in unison. This will allow incremental benefits to bed in and stack as technology change programmes unfold. Dedicated transformation teams have a proven track record here, with 94% of survey respondents already using them to implement wide scale technology change. The key here though is to ensure that the focus of the team extends beyond their immediate technology remit into these crucial interconnected adjacencies. This will then help to deliver coordinated gains across all three pillars.

 Conclusion

 A number of the banking technology decision makers surveyed for this study will find themselves at a crossroads. Armed with a once in a generation boost to their technology budgets, and a renewed sense of post-COVID purpose, their focus now will be on how to make the most of the bounty delivered by that short-lived spike in net interest margins. Data is key. What banks now need to do is finish the work already started in critical areas like cloud, analytics, and AI, joining the dots and creating a solid platform for future profitable growth and innovation.

This important work must be set about in ways that ensure that the carefully crafted technology investment strategies explored in our survey deliver the greatest possible value in an increasingly competitive operating environment. In doing so, by wrapping their activity up in a unified and purpose-led technology vision aligned to their organisations’ culture and customers, banking technology leaders, both in the UK and beyond, can best position themselves to deliver the transformation their banks need and solve the paradox of plenty.

To read more on this please see our full five-part series linked below:

1. The long and winding road… key challenges facing today’s BCM tech leaders after decades of banking transformation.
2. Show me the money… what resources do UK BCM tech decision makers have to work with?
3. Putting budgets to work… how are BCM tech leaders allocating their resources?
4. More money, more problems… navigating the potholes along the path to business impact.