Like businesses in most industries, financial service organizations in general have been investing heavily in technologies to modernize their operations and reap the benefits that come with much-talked-about digital transformation.
However, now several years into the effort, there is a growing split in the industry between the haves and have-nots; what Broadridge Financial Solutions calls the “leaders” and “non-leaders.” And the difference between the two are widening, the fintech company found in a report released this week.
“Only a few years ago, many institutions struggled to overhaul aging systems, and the existential threat of disruption from digital-first upstarts was tangible,” Germán Soto Sanchez, senior vice president of corporate strategy, wrote in the introduction to the 31-page study. “Now in a sharp reversal, executives are feeling the most bullish about their plans.”
That said, the report – Broadridge’s 2024 Digital Transformation and Next-Gen Tech Study – noted a “profound gap” is opening up between companies, putting some at a significant disadvantage at a time when new technologies continue to emerge – think generative AI – and the threat of cybersecurity continues to grow.
“Companies that have invested big in digital transformation — and built the innovation cultures and talent capabilities critical to fostering growth – more now pulling ahead of firms that will need to play catch-up to stay competitive,” the report’s authors wrote. “For example, 44% of leaders are making moderate to large investments in GenAI – more than twice the level of non-leaders.”
For the study, Broadridge surveyed 500 C-level and senior executives at financial services firms in 18 countries, with the companies have an average of $122 billion under management. They surveyed looked at the firms’ capabilities in 10 areas, from digital customer experiences and automation tools to digital skills and talent, data security and privacy, and harnessing emerging technologies.
The Gap Between Leaders and Non-Leaders
They found that 27% of the firms rated as leaders, while the rest were tagged as non-leaders, which included “advancers” at 48% and “beginners” at 25%.
“It’s no surprise that we are seeing significant momentum in the adoption of next-generation technology like GenAI from financial services firms looking to solve their most pressing business challenges, while they’re also gaining measurable value from more established technologies including AI, blockchain, cloud and core infrastructure platforms,” Broadridge President Chris Perry said in a statement.
Generative AI has taken over headlines since OpenAI rolled out its ChatGPT chatbot in late November 2022 and there is interest among financial firms to adopt the technology, but the immediate focus for most executives is on tools that are becoming more mainstream.
More than 80% of executives surveyed said their largest day-to-day investments are made in technologies that help them as they migrate more of their business to the cloud. For example, 95% of those designated as leaders are investing in data management tools, compared with 78% of non-leaders.
Cybersecurity also is another focus, with 93% of leaders investing in such technology. By comparison, 78% of non-leaders are investing in cybersecurity. However, there is little gap between the two groups when it comes to the cloud: 85% of leaders are investing in cloud platforms, while 84% of non-leaders are.
“Executives have invested heavily in moving core IT platforms to the cloud to support continuous innovation and create an integrated data platform accessible across business departments,” the report says. “To safeguard their platforms and data, they have adopted cutting-edge cybersecurity technologies and processes.”
Investments Driving IT Maturity
However, the differences really show themselves when looking at the maturity levels across the 10 dimensions that Broadridge used to gauge those companies surveyed. For example, leaders had an 85% to 24% advantage over non-leaders in having a culture of innovation. Other key differences included a 71% to 12% advantage in digital skills and talent for leaders, 68% to 24% lead in having a modernized IT core, and 65% to 68% to 17% in data management.
Looking outward, there also was a stark difference of 57% to 10% in offering digital customer experiences, according to the report.
“Leaders are three times more likely than non-leaders to have reached the advanced stages of implementing the foundational elements of digital transformation; modernized core IT, data management, and automation,” the authors wrote, though they cautioned that even leaders have more work to do to reach the advanced stages in several areas, such as using automation tools and agile software deployment.
Emerging Technologies a Focus
While making investments in core IT, executives increasingly are looking toward emerging technologies like AI – where 21% said they plan to increase their investments over the next two years, blockchain and distributed ledgers (20%), and robotic process automation (RPA) (14%). Other technologies in this category include biometrics and digital identity, quantum computing, cryptocurrency and digital assets, and the metaverse and virtual and augmented reality.
“Despite all the activity, only about one-tenth of non-leaders are at the advanced stages of harnessing these technologies’ potential, as compared with slightly over one-third of leaders,” according to the report. “There’s significant room to grow for everyone.”
The Human Factor
There’s more to this than just the technology, according to Broadridge’s Perry.
“Focusing on the human aspect of digital transformation – attracting and retaining digital talent and fostering a culture of innovation – has proven to be just as critical to ensuring these initiatives succeed,” he said. “Our study also revealed that firms with a decentralized approach to innovation are more likely to be leaders in transformation.”
That includes creating a personalized and seamless digital customer experience, with 40% of respondents say they this is the key driver in their digital transformation efforts and 52% saying they are prioritizing customer interaction with their AI investments. With generative AI, 44% of leaders are more likely to make large or modern investments in the technology, more than twice the number of non-leaders.
That said, the lower cost of deploying generative AI may make it easier for non-leaders to adopt the technology and use it for both customer-facing and internal initiatives.
In addition, cybersecurity will continue to be a focus, with financial institutions expecting to increase their investments in this area by an average of 28%, with a focus on internal operations as well as third-party tech vendors. Executives surveyed said cybersecurity was the top capability they expect from their IT vendors, beyond delivering projects on time and building next-generation technologies into their offerings.
