Outdated legacy systems are hampering growth for traditional financial services
Despite the bleak economic outlook, investment in digital transformation remains top priority for businesses. According to RSM UK’s latest ‘The Real Economy’ report, over a quarter (28%) of UK businesses now consider digital transformation to be their single most important area of investment. A further 58% of businesses surveyed view digital transformation as among their most important investment priorities.
In the financial services sector, creaking legacy systems and outdated IT are hampering growth for traditional banks and insurers. This is giving new fintech companies a competitive edge, with half of the UK’s sought after unicorn companies coming from the fintech sector according to Beauhurst. Moreover, Big Tech firms, with rich consumer data and enormous reach, are encroaching ever more on the financial services space. This has resulted in the Financial Conduct Authority (FCA) launching a ‘discussion’ on how to regulate competition of Big Tech’s entry into the sector.
While new fintechs and bigtech have an advantage over more traditional financial service providers in taking a ‘digital first’ approach, online financial services and apps are a prime target for cybercriminals. This could explain why a YouGov survey showed only 17% of people in the UK trust challenger banks as much as traditional ones.
Erin Sims, associate director of fraud risk services, RSM UK, said: ‘The ability to adapt in an agile way in response to changing consumer behaviour is enabling challenger banks, fintechs and insurtechs to thrive. Automation, artificial intelligence, cloud solutions and blockchain are all enabling them to deliver new solutions for consumers. With new technology comes new risks though, and the threat of fraud and cybercrime is never far from peoples’ minds. It seems trust, longevity and reputation still count for a lot with consumers, particularly among the older demographic, who are often more cautious about adopting online technology for banking and purchases.’
In spite of the obvious current economic pressures, almost half (49%) of businesses generally said they are determined to continue with their planned digital investment, according to RSM UK’s The Real Economy Report, while a further quarter (24%) plan to scale it up.
Chris Knowles, chief digital officer at RSM UK said: ‘These latest findings are in stark contrast to business response to previous economic downturns including the 2008 financial crisis, when investment in technology was one of the first things to be cut. It now seems that investment in digital technology is seen as business essential and not an optional overhead that can be cut when times get tough. Some of this mindset shift may be down to the covid pandemic, when all businesses were reliant on digital technology to remain operational.’
The report also found over two thirds (69%) of businesses expect digital investments to become a higher strategic priority over the next three years. Only one in five (19%) businesses plan to reduce or cancel their investment in digital transformation. The areas considered a top priority for investment include digital marketing, (51%) followed by CRM and customer analytics (49%) and data analytics and business intelligence (47%). Artificial intelligence (AI) and machine learning was a lower priority, at 32%.
Chris Knowles continued: ‘It is no surprise to see investment in technologies that directly drive revenue growth, such as digital marketing and customer analytics, at the top of the list of digital investment priorities. Over the next five years I would expect to see the number of UK businesses investing in AI increasing across all business types and sectors. We want to see the government prioritising AI in its industrial strategy to create the right conditions for research and investment in AI so that the UK becomes a world leader in the field.’
Encouragingly, almost half (41%) of businesses surveyed said they had substantially achieved their digital transformation goals, while over a third (38%) said they were still some way off this. Almost a third (31%) said that, although they have plenty of digital activities, they didn’t have a formalised digital transformation strategy in place.
Chris Knowles concludes: ‘While it’s encouraging to see so many middle market businesses prioritising investment in digital transformation, those that don’t have a clear digital strategy driven from the top are less likely to achieve long term return on investment. A good digital strategy should consider the customer, employees, data security, wider architecture, skills and culture, and above all it should be aligned to the wider business strategy.’
