Digital transformation presents banks with trillion dollar profit opportunity

Temenos has announced the first set of results from the Temenos Value Benchmark, a strategic, survey-based program providing in-depth analysis of how software capabilities impact a bank’s profitability. Key findings show that top-performing banks using software invest in end-to-end digitisation, underpinned by state-of-the-art analytics to achieve industry-leading profitability levels.

As a result, these top performing banks have achieved industry-leading cost-income ratios of 25.2% and returns on equity of 25.0%, 2X better than the industry average. These banks also invest over 53% of their IT budget on growth and innovation versus maintenance, which is 2.5X the industry average. The results show the tangible value to be gained if banks are able to digitally transform their businesses and move from legacy-systems to modern, off-the-shelf packaged software running on the latest cloud-native, cloud-agnostic, API-based technology.

Banks are challenged by tough macro-economic conditions, the rise of new competition and evolving customer demands, combined, in some cases, with crippling legacy architectures. However, they have an immense opportunity to harness the power of digitisation to transform their business and achieve dramatic profitability improvements. The average return on equity for participating banks in the Value Benchmark at 15.6% is significantly higher than current industry-average returns on equity of 8% to 10%. This differential translates into up to a massive additional 1 trillion USD profit potential for the global banking industry were it to digitally transform, assuming a $140 billion increment in operating profit for every 1% increase in return on equity¹.

“There is a trillion dollar profit opportunity for banks which move away from legacy systems to modern packaged software running on the latest cloud-native, cloud-agnostic, API-first technology,” explains Max Chuard, Chief Executive Officer, Temenos.

“The case for digital transformation has never been stronger and the urgency for change has never been greater. The results of the Temenos Value Benchmark Program show that clients are amongst the top performing banks in the industry and by transforming their end-to-end digital banking platform, they have been able to achieve industry-leading profitability levels while innovating faster and delivering exceptional digital experiences for their customers.

For most banks, digital transformation is a once in a life project, for us is our full time job. We are proud to take a bank live on our software every day of the week. We help institutions of all types – from large global banks such as Nordea and Standard Chartered to digital-only banks like Varo Money and Volt Bank – to unlock the business value of the digital banking opportunity and drive best-in-class performance and profitability.”

Five Drivers of high-performing banks:

The Value Benchmark has revealed that top performing banks who have digitally transformed their business and moved away from legacy-systems are able to differentiate across five key areas:

1. Product innovation and growth: They launch products and services faster, which result in higher customer growth. These banks can focus their IT spend on growth and innovation rather than maintenance.
2. Customer centricity: They engage digitally with more of their customers, cross-sell more and on-board customers faster. All of these contribute to higher customer satisfaction.
3. Operational efficiency: They have higher levels of automation driven by straight through processing both, in the front and the back office allowing support of more customers with fewer staff.
4. Effective risk and compliance: They have more efficient and effective compliance functions, leading to better staff productivity and more efficient operations. They also spend less of their IT budget on regulation.
5. Advanced analytics: They use analytics widely and effectively with a higher proportion of self-service reports and a greater proportion of business users using analytics. They also have a stronger data foundation in terms of lower data duplication across their systems.

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