Which Aspects of a Bank's Digital Transformation Should Be Evaluated before Investing in It

Denis Astapchenia

Denis Astapchenia

Head of Financial Services at Andersen

Financial Services
Jul 21, 2020
6 minutes to read

Nowadays, the growth in the efficiency of the banking enterprise directly depends on its digital transformation. Larger investment capital is received by those banks that have a digital strategy and augment their success by automating the business for customers and employees.

We spoke with IT Directors of Eastern European banks to figure out the following issues: how an investor can recognize whether a bank is really on the path of digital transformation, how this path differs from conventional digitalization, and what non-obvious things one should pay attention to before investing with a bank.

How much will it cost for a bank to go digital and how can this be calculated?

A bank's ambitiousness = the volume of investments in its digitalization, where digitalization is the creation of a new/innovative process/product, not just its digitization.

We interviewed representatives of ten banks and came to the conclusion that the amount of investments needed to increase the process’s profitability should be about 10% of the bank's annual costs during the active transformation phase.

The active phase lasts on average from one to three years. Later on, the volume of investments may gradually decrease. However, it is necessary to understand that digital transformation is a process that cannot be stopped once launched. This process requires constant financial support.

Problem: Many IT Directors cite the challenge of justifying and hence receiving investments as the main hindrance for the large-scale transformation of the bank. One of the main mistakes of those who advance arguments for the size of potential dividends is an excessively straightforward approach. Shareholders receive a cost estimate, and as a rule, few of them are mentally prepared for the figures.

How to avoid this?

Focus not on costs but on indicators. These are what reflect the influence of investments in digitalization that the bank will receive: the money and time saved, labor productivity growth, etc.

Role of the Digital Transformation Director

The role of the Digital Transformation Director is not new but is still popular. The position of Chief Digital Transformation Officer or CDO appeared in Western countries back in the 2000s due to the leap forward in technology and the emergence of social media.

Today the question is, how to