Banks have big plans for tech— but investors need convincing
Now more than ever, leaders of the finance world are on a massive tech spending spree. Two-thirds of industry leaders planning mass adoptions artificial intelligence (AI) within the next two years.
While banks and financial firms are increasingly bent on onboarding tech solutions that can make their work — and, therefore, earnings — as efficient as possible, a report from Oliver Wyman reveals that investors on the sideline are less confident about the returns from these newly-assigned budgets.
The research found that three-quarters of investors are not confident in financial services’ digital transformation strategies paying off despite this accounting for just 5 percent of annual spending. Less than one percent think financial services firm’s strategies are clear and credible.
And this is where the friction is arising: many financial service firms announce ambitious, big-budget transformations, yet the finer details are rarely conveyed clearly to investors.
The absence of comparable datapoints leaves investors muddled; “it is all jumbled up — IT replacement, automation, customer journeys […] There seem to be some wins, but it’s anecdotal,” said one fund manager in the report.
The misalignment in expectations is clear in the documentation of investment plans — only 27 percent of content related to technology is found in analyst research reports.
At this stage, only about a quarter of investors are optimistic about the transformational value of digital strategies, but it’s not to say awareness of the importance of those tech investments is completely absent.
About 80 percent recognize that transformation is essential in their investment ventures. More than half (60 percent) believe technology initiatives will increase profitability.
For investors, the return on funds is measured through the productivity and profitability that technology initiatives bring. Financial firms must reevaluate their communications with investors in the boardroom. That starts with going back to the roots of having a clear plan in mind and on paper. Organizations need to monitor and measure the transformative properties of digital investments so there is clear, hard information to report back.
By doing so, financial firms and their investors will have a clear picture of how spend translates to technology; how technology translates to improved processes; and how improved processes translate to better returns.
“Each company needs to find the right mix to bring vision and value together and agree on a path forward – all while the threat of big tech looms, a recession may be coming, and investors are growing increasingly impatient,” said Ted Moynihan, Global Head of Financial Services from Oliver Wyman.
3 February 2023
3 February 2023