Finance & Economics

ECB to monitor Digital Transformation Efforts at Banks

The European Central Bank plans to conduct targeted reviews and inspections due to the identification of shortcomings in the digital transformation strategies of banks.

ECB to monitor Digital Transformation Efforts at Banks

Source: Pixabay.com

In the summer of 2022, the regulator conducted a survey among 105 large banks in order to assess their readiness for deep modernization in the format of active digitalization. Based on the results of this survey, key trends related to digital transformation efforts were identified.

Almost all the survey participants have developed a strategy for technological transition. In most cases, a financial resource that makes up a fifth of the IT budget is allocated for the implementation of the relevant plans. The degree of readiness of banks for digital transformation differs.

When planning an activity strategy, financial institutions define the main goal as an increase in the level of orientation of the product line and services to customers. In these efforts, banks see an opportunity to rise profitability indicators. Automation of processes and modernization of IT infrastructure are perceived by financial institutions as a way to increase operational efficiency.

But most banks still face challenges in developing key performance indicators (KPIs) to monitor digital progress, quantify the impact of digital transformation on their profitability, and track the effectiveness of implementation.

The ECB notes that when developing the IT infrastructure, financial institutions rely not on their own strength, but on the services of third-party companies. This trend contains a risk, which is that there is a significant dependence of banks on third parties. The potential risk of money laundering and fraudulent interference is also increasing. For this reason, own IT platforms are of particular relevance and importance.

The ECB notes that the risks associated with the specifics of the use of IT infrastructure require further monitoring and should be taken into account in the management of banks. The potential danger is also among the supervisory priorities of the banking supervision of the regulator for 2023-2025.

Another survey conducted in 2022 by the technology provider ITRS among 300 technology and IT executives in North America, Europe, and the Asia-Pacific region testified that the accelerated digital transformation of the financial services sector does not match the IT capabilities of this industry, which reason, why in the future, if the current trend continues, the level of operational stability will decrease.

As we have reported earlier, ECB Reveals Euro Area Lending Trends.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.