Mergers and acquisitions have reduced the number of Italian banks from over 700 to around 400 in just the past decade.1 Consolidation has triggered the start of digital transformation, but there is still a lot to be done. Digitalization presents a perfect opportunity for providers both to redefine their post-merger operations and seize the initiative in offering the innovative new products that will allow them to keep pace with evolving customer demands and competitive pressures.
Italian banks have continued with strong performance in the past months, with the average ROE for the largest banks at 7.1% in Q3 2022 and a positive outlook for profitability in 2023.2 Now is the perfect time to initiate or accelerate the digital transformation agenda.
Below, we highlight what we see as the five digitalization priorities for Italian banks to ensure they remain relevant and profitable.
Very few banks currently offer a fast and smooth onboarding experience for new customers looking to open a current account, for example. The biggest challenges are developing the necessary specialized software along with managing mandatory customer documentation.
The opportunities to implement digital onboarding are significant. Italian banks can leverage the experiences of their peers in other markets, such as the UK, where digital onboarding capabilities are well established – and have proven their worth in attracting and retaining customers, both retail and corporate, via user experiences that are engaging, swift and convenient.
Payments contribute to developing digital economies and driving innovation, while continuing to serve as a backbone of the global economy. Payments are increasingly becoming cashless, and the industry's role in fostering inclusion has become a top priority.
A greater number of Italians use digital payment systems today than in the past years, but the country ranks one of the lowest in Europe for cashless transactions per capita, and is trending in the opposite direction to the European average.3 Larger payments, in most cases, can still only be performed by visiting a branch.
Recent research from Mastercard suggests that three quarters of firms that do business in Italy recognize digitalization as a positive development, driven largely by ecommerce.4 In addition, the revised payments services directive – PSD3 – due to be published at the end of June, will allow third-party providers access to payment accounts held by customers at other financial institutions. This will increase competition and innovation in the payments market while also requiring greater standardization and interoperability from established banks.
Similar to making larger payments, taking out a loan via a traditional bank is difficult without being physically present. While customized loan comparisons can be done quickly through online comparison firms such as Facile, this service is not offered to customers by traditional banks.
Although a significant shake-up of both regulatory compliance and infrastructure will be required to change this status quo, the use of modern technology would speed up design and implementation of such measures.
A true end-to-end digital offering for retail customers simply doesn’t exists in the traditional banking space today. In our view, provision of the holistic and meaningful journeys that are so key to customer engagement and satisfaction would not be complete without incorporating a suggestion engine. Cross-selling is not just about growth, it’s about retention, confirmed by the known formula that 80 percent of future sales will come from 20 percent of existing customers. For banks, it also means maximizing the use of the large volumes of customer data they hold to ensure the experiences and products on offer are suitably targeted and tailored to customers’ needs.
Automating regulatory compliance is another key digitalization priority, as most of incumbents’ compliance processes are today still entirely manual – and the list of regulations long. Process automation will fundamentally change interactions between clients, bank employees and operational functions, by eliminating manual tasks to achieve superior levels of efficiency and accuracy.
The global automation in banking market is predicted to grow with a CAGR of 26% in the next decade, reaching over US$ 7 billion by 2031.5 Compliance, including AML and KYC, will account for a substantial part of that growth.
One potential solution here is ChatGPT and similar generative AI models, which could serve as a real-time regulatory knowledge base for end-users as well as providing accelerated ‘training’ for other artificial intelligence tools used by banks.
Starting with online onboarding, a complete digital banking experience would offer Italian customers payments, loans and other financial services, complemented by a recommendation and customization engine and supported by automated compliance processes. By leveraging the lessons learned from other countries where digital banking offerings are already mature, new and compelling propositions can be designed and implemented – either via a ‘big bang’ transformation or broken down into more discrete projects – to accommodate a specific institution’s setup, strategy and goals.
Capco Italy offers our banking and financial services clients extensive global expertise in digital transformation, post-merger integration, data and analytics, cloud and emerging tech. Contact us to discuss your vision and goals and to find out more about digitalization opportunities in the Italian banking market.
1. https://www.statista.com/statistics/618688/number-of-banks-in-italy/
2. https://scoperatings.com/ratings-and-research/research/EN/172753
3. https://www.statista.com/statistics/730296/number-of-payments-other-than-cash-by-type-in-italy/
4. https://www.mastercard.com/news/europe/en/newsroom/press-releases/en/2022/october-2022/postepay-and-mastercard-launch-a-solution-to-digitize-payment-requests-across-italy/
5. https://www.alliedmarketresearch.com/rpa-and-hyperautomation-in-banking-market-A31697
