Findings from the First Study in a New Multi-Year Research Collaboration, IBM and BIAN Identify Challenges and Best Practices Impacting Bank Financial Performance

In the years since the 2008 financial crisis, banks have struggled with performance and profitability. Average return on equity (ROE) remains well below banking industry metrics, and cost to income ratio (CIR) has improved on average but remains high.

Fintechs and Big Tech continue to grab share from traditional banks as customer preferences shift and millennials and Gen Z make up an increasingly larger share of the workforce. Improving metrics like ROE and CIR not only requires a new mindset, but also a willingness and readiness to embrace the evolving global digital landscape. Banks must innovate and adopt new digital platforms that are much more consumer oriented with rich personalization, new AI powered digital tools and services that help them remain relevant.

To help financial institutions with this digital transformation, IBM, and the Banking Industry Architecture Network (BIAN) have embarked on a multi-year research collaboration to identify and examine best practices in technology infrastructure. To kick off this collaboration, we are today unveiling the results from a new study which sought to better understand what sets apart the most successful banks from those who are lagging behind and how technology plays a role in bank profitability, outlined in our detailed report, Foundations of Banking Excellence.

Key Findings

Among the findings, the analysis uncovered that 79% of banks are still in the foundational stages of their hybrid cloud journey and that the institutions that have achieved superior financial performance prioritized IT architectural models, for example data fabrics and AI factories.

Specifically, banks with healthier financial performance are characterized by six key practices that they are executing against:

1. Engaging in partner ecosystems to fuel faster innovation and efficiency
2. Implementing end-to-end digitalization to streamline and automate complex operational workflows and drive innovation
3. Establishing data fabrics to allow data to flow through a broad network ‘on tap’
4. Deploying AI factories and transform data environments that put data into action
5. Creating small, operationally focused teams that are responsible for identified, end-to-end tasks
6. Integrating early development process monitoring to provide data, obtain user feedback, and prepare for deployment and maintenance activities

These six themes highlight that banks who look at business operations holistically are most successful not only with their digital transformation, but also when it comes to their financial performance. This includes utilizing modern technology like hybrid cloud as a transformative lever for unlocking business value and artificial intelligence to derive more from their data. Hybrid cloud strategy is particularly important. In fact, according to a recent IBM Transformation Index: State of Cloud study, 71% of financial services organizations that were surveyed thought it was difficult to realize the full potential of a digital transformation without having a solid hybrid cloud strategy in place.

The impact of cloud on business value, when integrated with transformative levers, is 20x greater than the potential economic realization of cloud as a standalone strategy. Successful banks often prioritize collaboration and innovation both within and across their enterprise boundaries.

Best Practices: An action guide to adopt exponential technology as a business opportunity

Exponential technologies have become fundamental to achieve operational efficiency, obtain competitive advantage, manage risk, and achieve financial outcomes. To fully achieve these results, we see banks executing against these six practices in three main areas:

1. Open up to external participation and innovation through engagement with ecosystems of both bank clients and partners.
2. Banks need to digitize their business processes, professional practices, and applications to run the business more efficiently.
3. Beyond initial exploration of hybrid cloud, it is necessary for banks to modernize technical infrastructure. This is where a coreless banking approach comes into its own. Banks can future-proof their systems while overcoming many of the obstacles involved with adopting new technologies.