Interim study report - Executive Summary (January 2008)
(The final study report will be available by the end of September 2008.)
This is the interim report of the Sectoral e-Business Watch study on ICT and e-business usage in the banking industry (hereinafter the BI). The study objectives are to describe how companies in this industry use ICT for conducting business, to identify opportunities and barriers for ICT adoption, and to assess impacts of this development for firms and for the industry as a whole. Analysis is based on a literature review, expert interviews, case studies and the Eurostat Community Survey on ICT usage in the financial sector. Results of an econometric analysis of ICT drivers and impacts (Section 4) will be added in the final study report.
For the study purpose, the banking industry is defined to cover the following business activities: NACE Rev. 1.1 65.12 "Other monetary intermediation" (Rev. 2 64.19), and 65.22 "Other credit granting" (Rev. 2.0 64.92). The BI employs about 3 million people in the EU (European Central Bank) and generates about 490 billion euros in value added (latest available figures – 2004, Eurostat). Within the EU, the financial services sector is relatively largest in the UK, which generates just over one fifth of the total value added (21%).
Major trends in the industry include the renewal of branch and processing capabilities, a focus on improving and innovating customer relationship management strategies, and the renewal of the automated teller machines. Major challenges to be addressed by the industry include anti-money laundering, i.e. the fight against the misuse of the BI. Important issues with regard to ICT are ensuring data protection (notably in online transactions), abilities of disaster recovery, and the provision of ever more sophisticated e-banking services in response to increased customer expectations in this domain.
A shortage of personnel with ICT skills could not be confirmed
The analysis and the case studies developed for this interim report could not provide conclusive evidence to the shortage of ICT-skilled personnel. The case studies instead highlighted the importance for banks to have access to highly skilled ICT specialists to develop e-banking and ICT systems for process efficiency purposes. The statistical material analysed in Chapter 3, however, could not support this, as the survey results do not indicate a gap between the availability and demand for ICT-skilled labour. Only a limited number of banks needed to hire ICT practitioners (42% of all banks), and only few banks found it difficult to find employees with such skills (9% of all banks). This can however be due to outsourcing of ICT-development in the BI.
Thus, the possible gap between availability and demand for ICT-skilled employees will be the focus for further analysis in the final report, in order to achieve a more in-depth understanding of the labour dynamics of sourcing ICT-skilled labour in the BI.
The widespread uptake of e-banking could not be confirmed
As discussed in Chapter 3 and as presented in the case studies in Chapter 5, e-banking is being transformed into an advanced ICT solution where most of the everyday banking can be conducted online. The case studies show both the successful development of Internet-only banks and banks that have renewed their approach to banking by adding e-banking to the traditional brick and mortar banking, thus creating dual combination banks. Based on this evidence, both models seem to be viable in the current competitive situation. The statistics however illustrate that e-banking across Europe is still not yet widely used among private and business customers.
A better understanding and more confidence in the Internet is required for a wider adoption of e-banking. Customers are still concerned about the security issues of e-banking, and not all banks are ready to provide e-banking services such as payment services, investment services and banking products/services to their customers. e-Banking may thus be hampered by behavioural issues among customers along with issues of investment sluggishness or different business models among banks. These factors will be the focus point for additional research to be presented in the final report.
SEPA benefits for the BI are observable but the implementation may be behind schedule
As analysed in section 3.2, SEPA benefits different elements of the banking value chain. The benefits for the industry, seen from a legal perspective, comes from increased transparency, less risk of money laundering, increased transactions across borders and access to new markets. However, the business case for SEPA seen from a bank perspective may not be as clear. Due to uncertainty about the actual role out of SEPA, many banks are settling for minimum solutions that only implement the required SEPA instruments. Hence, they are not making full use of the embedded potential in SEPA. The banks only make the accompanied investment in the SEPA compliant ICT-systems to meet minimum requirements, which means that they will possibly not be designed to include the upcoming renewals of the payment processes driven by technology, customers and legislators.
As the implementation of SEPA is ongoing, the final report will focus on the efforts made by the BI to implement SEPA along with an analysis of the resources set aside and the expectation among industry representatives to SEPA.
The implementation of ICT-enabled business processes and services forces banks to renew bank branches
The traditional use of physical bank services has decreased in recent years, among other thing due to the introduction of e-banking. Customers are increasingly requesting an online alternative and the development of ATM networks is increasingly taking banking operations out of the bank branches. The eroding of the traditional reason for being has forced banks to rethink branch banking. As illustrated in the case studies some banks choose a combination between e-banking and advisory-based branch banking. This allows them to offer the “best” from two worlds as customers can conduct some bank services online while still having the opportunity to obtain customised bank advisory for specific situations.
As the bank branch renewal process is ongoing in many banks the actual setup and the final service offerings among renewed branch banks is still not clear. Further analysis will focus on the consequence of this process in terms of the work force composition and the profitability of branch banking.
Reinforce and support the SEPA implementation
Based on the preliminary analysis, there is reason to believe that the European Commission could play a more active role along with industry federations to support and reinforce the implementation of SEPA instruments. The overall success of the SEPA initiative rests on its adaptation by banks and the development of critical mass in the number of transactions within a reasonable time frame (see Section 3.2.)
This work could be supported to a greater extent than today by soft policy initiatives from the European Commission along with soft incentives from industry federations.
Support the development authentication of e-banking customers
The Internet implies that financial services are increasingly borderless and global. Internet-based transactions require their own security measures, for which private solutions may not be sufficient. For example, government actions are needed to set up a framework for digital signatures and to pick agencies or processes to authenticate public keys associated with transactions.
As illustrated in section 3.1 the uptake of e-banking is still not large in a pan-European perspective. One of the barriers to e-banking is the general low level of perceived/actual security in online transaction. The issue here is to balance security and privacy protection. It is argued that a pan-European e-banking authentication scheme would promote e-banking uptake, increase competitions among banks across borders and increase the mobility of European citizens.
Support the skills development among bank personnel
An increasing number of jobs are being changed from traditional tellers (i.e. the personnel cashing checks, accepting deposits and loan payments, and processing withdrawals) to branch advisor/counsellors. This means that bank staff is under increasing pressure to be able to provide highly qualified financial advice instead of performing labour-intensive teller functions (see Section 3.3).
The current renewal process in the financial industry brought forward by technological advancement may leave a group of staff unable to develop their skills accordingly. Based on the preliminary analysis it is therefore recommended that especially trade federations and the like play an active role in skills development among bank staff in order to prepare them for their new role in the banks.
