More than half of UK financial institutions (52%) plan to spend more on technology over the coming year, with a small number (8%) planning a significant increase. But, less than a quarter see themselves as leaders in digital developments.
TLT's Digital banking report found that online banking (62%), in-branch technology (42%) and improving or replacing existing IT systems (39%) were the top priorities for the increased spend on technology. Data consolidation (72%) was the priority operational IT investment.
Driving those priorities is the need to generate new business (86%), reduce costs (82%) and improve security (78%). Increasing customer loyalty through technology is also a key ambition (73%).
A substantial proportion of those surveyed (55%) also said they were more likely to invest in technologies endorsed by regulatory authorities. Cloud is a good example here, with FCA support and guidance driving increased use.
Unsurprisingly, financial institutions plan to use private cloud services (83%) with high levels of security for sensitive data. But, the use of public cloud (79%) and community cloud (61%) is also high, which is typically used for software development and administration.
James Touzel, head of Technology at TLT said:
"Banks have been encumbered by size, public scrutiny and a heavily regulated environment, particularly compared to their more nimble competitors. But they are now turning their technological firepower away from principally meeting regulatory standards following the 2008 crisis to developing new digital products and services.
"Our survey shows a determination to accelerate the pace of change to digital banking services and a growing convergence between financial institutions and developers.
"Banks are typically looking outside of their organisations for innovative technologies to develop, with nearly half reporting collaborations with fintech start-ups and around a third working with outside consultants. This approach will be central to banks evolution from mere holders of money, to advisers on managing it and aggregators of other services."
The top three barriers facing financial institutions in their digital evolution are a limited capacity to invest (32%), legacy systems (29%) and security issues (28%). Respondents also cited threats from online only banking providers, digital currencies and peer-to-peer lending as three of their top five fintech threats, alongside peer-to-peer currency exchanges and international money transfers. James Touzel commented:
"Digital transformation is no easy task. Many traditional banks are weighed down by digital legacy issues that need untangling. The core of the dilemma is that with so many potential areas to invest in, and the wholesale digitisation of the customer experience, what's the priority?
"The move to digital also brings legal issues. A future reliance on intellectual property and shared software will force banks into new contractual obligations. More extensive exploitation of customer data must be balanced against compliance with rules on how customer information can be used. It will also pose questions about cyber security and where liabilities rest."
The report also found wide support for the new regulatory environment created by the Financial Conduct Authority to encourage technological innovation, with near universal satisfaction from those who had any involvement with Project Innovate. But, engagement with the FCA is generally low with 73 per cent of institutions having ‘limited or no engagement’ with the FCA when it came to digital developments.
Most financial institutions remain concerned about data protection (91%), as more services migrate online. Yet, only 58% reported that their institutions were 'quite or very prepared' for the EU General Data Protection Regulation, which will have a significant impact when it comes into force in 2018.
Surprisingly, only 5% of senior IT decision makers at financial institutions were aware that the EU Payment Services Directive (PSD2) will require them to share customer account details via open API access. James Touzel commented:
"Post-Brexit, some UK banks may have been hoping to move this off the agenda. But the CMA's recent report into competition within the UK's retail banking market has concluded that an open API banking standard is key to increasing competition."