ECB-PUBLICECB-CONFIDENTIAL

Take-aways from the horizontal
assessment of the survey on
digital transformation and theuse of fintech

15 February 2023

ECB Banking Supervisionwww.ecb.europa.eu ©

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Contents
1. Overview
2. Horizontal assessment of the digital transformation survey
I.

Digital strategy and KPI steering

II.

Digital business

III.

Investments and resourcesIV.

Governance and cooperationV.

Use of innovative technologies

VI.

Risks/challenges

3. Concluding remarks and supervisory focus

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1. Overview – six focus points for digital transformation strategies

ECB Banking Supervision (ECB and NCAs) conducted the firstSingle Supervisory Mechanism (SSM)-wide data collection on
digital transformation and fintech based on banks’ self
assessments and combined this with market intelligence
initiatives to build knowledge on this evolving field of expertise.
This led to some preliminary insights:• Digital transformation is relevant for all SSM banks, andmost of them have a digital transformation strategy in place.
• Digital transformation can be defined as a bundle of businessmodel, processes and cultural transformation, enabled bytechnologies.

ECB-PUBLICECB Banking Supervision identified six focus
points to shape a framework for supervisors
when looking into digital transformation
strategies:
Investments
and resources
Digitalbusiness
Governanceandcooperation

Digital strategy
and KPIsteering

Use ofinnovativetechnologies• There is a high degree of heterogeneity in banks’ submissions
and further dialogue is needed to validate them.
Risks/challenges

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1st focus point : Digital strategy and KPI steering

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Categorisation of banks’ KPIs

The majority of banks only started to develop their digitaltransformation strategy in recent years, targeting revenues andcost objectives.

12%
3%
5%
18%

• The most important digital projects carried out by SSM banks arebroadly in line with the key objectives of digital strategies: attract
and retain market share and achieve efficiency gains.
• 43% of banks’ top-5 projects are aimed at revenue/
customer experience enhancement.
• 83% of banks see process automation as a key lever toreduce costs (mainly through IT legacy transformation).

62%

Customers

Tech and Processes

Costs

Revenues

OthersObjectives of key digital projects• Banks develop KPIs to monitor customers’ preferences.
• However, even given the multi-faceted nature of digitaltransformation, banks still find it difficult to isolate and quantify
the cost and revenue impacts of their digital transformation
strategies and processes.

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2nd focus point: Digital business

Internet vs mobile customers (% of total customers)

Most digital strategies are customer-centric, but keeping track ofdigital customers and sales remains heterogeneous

100%

Internet

80%

70%

59%

60%

40%

29%

30%

20%51%

50%

50%• There is widespread willingness to improve customer experience byconducting business digitally: banks identify almost half of theircustomer base as digital.

Mobile90%35%38%

34%
26%

23%

34%

36%

31%

27%

23%

22%

14%

10%

0%

• The mobile channel is more popular than internet banking, especiallyfor bigger banks: 36% of bank customers use mobile banking while
21% use internet banking.
• Monitoring the actual use and contribution of digital channels isheterogeneous:• Half of the sampled banks do not monitor the number ofcustomers digitally onboarded.

Digitally concluded loans (% of total loans)
50%

49%

46.0%

44%
32%
19%
11%

• Only one in four banks can quantify the volume of digital sales.
• Half of the sampled banks monitor the number of digitallyconcluded loans (e.g. pre-decided loans, consumer credit),which stands at around 45% of their total loan portfolio.

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3rd focus point: Investments and resources
6.0%

Digital transformation budget as % of operating income
5.0%

The self-assessment provided a very preliminary estimate ofbanks’ digital spending at the end of 2021
• On average, banks invested 2.8% of their operating income1 indigital transformation projects in 2021.

4.0%

2.9%

3.3%

3.1%

2.8%

3.0%

2.1%

2.0%

2.0%

2.0%

1.2%

1.0%

0.0%

• 61% of banks reported having a digital transformation budget
embedded in the IT budget. For these banks, their digitaltransformation budget is reported to be 22% of the IT budget.
• On average, banks allocated 5.2% of their workforce2 to digitaltransformation projects at the end of 2021.

10.0%

9.0%

Digital transformation FTEs as % of total staff

8.0%• The heterogeneity in the answers provided may result in adiverging image for individual banks, particularly as digitalisationis on average found to be more advanced in retail oriented
business.

7.0%

6.0%

6.5%
5.6%

5.2%

4.8%

5.0%

4.0%

2.9%

3.0%

3.4%

3.8%

3.0%

2.0%

1.0%

0.0%

1 Finrep – Net operating income {F.02.00 - R.0355 ; C.0010}
2 Finrep – Total staff {F.44.04 - R.0050 ; C.0020}

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4th focus point: Governance and cooperation

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Coordination body to steer digital transformation

Banks recognise the importance of the “tone from the top” tosteer digital strategies and the need to increase IT/digital skills• Most banks have in place a coordination body (normally at nonexecutive level) to steer the design and implementation of the digitalstrategy.
• Top management is often involved in the definition and designof the digital strategy. However, its reporting isheterogeneous across banks.
• The 2nd and 3rd lines of defence are often involved in theimplementation and monitoring of the digital strategy.

Preferred forms of cooperation• Banks identify a “war for talents” in the market to attract andretain digital and IT experts as a key challenge at all levels within
their organisation.
• To implement their digital transformation strategy, banks prefer tocooperate with external partners, mostly by buying in services(software as a service – SaaS) and using consultants. The majorityof banks (61%) make use of at least one form of cooperation.

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5th focus point: Use of innovative technologies
Technologies enable banks’ digital transformation

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Adoption rates of innovative technologies• APIs (application programming interfaces) and cloud computing arewidely used across banks and the cloud is considered a foundation for
digital transformation.

• AI (artificial intelligence) has on average a lower business relevance,
but 60% of banks are already using AI, with more use cases indevelopment.
• DLT (distributed-ledger technology) based solutions are currently barely
used across banks (less than 20%) with limited business relevance sofar. In terms of crypto-related activities and exposures, this is stillinsignificant.

Relevance for the business model

Most relevant use cases per technology:• API: Mobile apps/platforms covering account information, business as a service(BaaS) and payment solutions• Cloud: Migration/IT optimisation and data platforms using SaaS solutions• AI: Chatbots, credit scoring and algorithmic trading• DLT: Trade finance (smart contracts) and settlements. As regards crypto:
custody of crypto assets, tokenisation of traditional financial instruments
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6th focus point: Key risks/challenges and risk management

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Key risks

Banks identify key risks and challenges triggered by digitaltransformation• Risks associated with digital transformation are mainly
perceived as cyber risk, increased third-party dependency,
AML/fraud and potential loss of customers.

• Key challenges to digital transformation are having therelevant experience and cybersecurity.
• In addition, complexity, legacy IT and lack of internal skills
are leading to dependency on third parties and are perceived
as a challenge.

Key challenges• Cost management is a further challenge as digitaltransformation is often run under tight investment constraints.

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3. Concluding remarks and supervisory focus•

ECB Banking Supervision’s focus is on the assessment of the impact of digitaltransformation on risks in terms of:
••
•
•

•

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strategic risk (e.g. sustainability of the digital transformation strategy,consistency with the business model, capabilities building and adequacy);
governance and risk management framework;
IT and operational risks;potential new/emerging risks.

The SSM remains business model and technology neutral, while
acknowledging the importance of enhancing understanding of the impact of digitaltransformation on banks’ business model sustainability and risk management.

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