Trends in the Use of Digital Technology in Banks and Prescriptions for Promoting Its Use

The use of digital technology currently occupies an important place in corporate strategy at banks. This is because, in 2019, the Japanese Financial Services Agency (FSA) released its “Discussion Paper for Dialogues on Practices of IT Governance at Financial Institutions,” which described the FSA’s vision for the use of digital technology, and because the use of digital technology can provide solutions to a variety of business challenges facing banks.

Since WWII, Japanese banking systems developed largely in parallel. However, since the end of the government policies aimed at ensuring that equal financial services are available at any financial institution, each bank has faced the need to develop its own corporate strategy, meaning Japanese banks have long since entered an era in which they have needed to develop their own strategies for IT systems as well. Due to external factors such as the decline of the Japanese population, the number of financial institutions is forecast to fall in the future. Corporate strategy over the coming years can thus be said to be approaching a watershed, where the futures of all financial institutions will be determined. This makes strategy for the use of digital technology, which is tied to corporate strategy, even more important for banks, as they seek sustainable growth and improve competitive advantage in this context.

The FSA has also made clear the relationship between corporate strategy, IT strategy and DX strategy, having released its “Discussion Paper for Dialogues on Practices of IT Governance at Financial Institutions” in June of 2019 (see Figure 1). This paper defined corporate strategy as strategy seeking to establish sustainable business models for financial institutions, IT strategy as strategy seeking to decide policies for the upgrading of core systems and for next-generation system architecture, and DX strategy as strategy seeking transformation of channels and operations with a view to improving profitability and transforming the business models of financial institutions.^＊1This Insight refers to the overlap between IT strategy and DX strategy as digital technology utilization strategy.

As banks face a great many business challenges including low growth and labor shortages across regions due to the declining population, addressing the shift to a cashless society in response to the development of technology and changing consumer preferences, and handling cybersecurity, in practice, they have adopted a wide variety of strategies, including improving their overseas operations, shifting to a general trading company model, shifting to a holding company model, M&A and corporate alliances, improving their consulting services, insourcing IT systems and improving their use of digital technologies. Even amidst all of these strategies, “utilizing digital technology” can be a strategy that offers some means of addressing many of the challenges enumerated (see Figure 2). While every bank is unique, it is important to note that there are virtually no banks not incorporating the use of digital technology into their strategies. This Insight puts the spotlight on the use of digital technology by banks and summarizes the results of a survey of the state of recent such efforts across banks.

*1 ABeam definitions based on the FSA, “Discussion Paper for Dialogues on Practices of IT Governance at Financial Institutions” (second edition, June, 2023)

We believe that banks should be aiming to use digital technology in a way where, rather than having digital technology personnel pursue specialized careers in specific departments, digital-enabled transformation is incorporated into all possible layers of their organizations, and where a cycle of accelerating the use of digital technology is produced from the ground up. Achieving this calls for the formulation of a medium to long-term plan including HR strategy and the creation of a digital technology utilization promotion cycle, rather than the mere accumulation of individual digital technology measures that happen to be easy to tackle.

One possible vision for the future of sales at banks with face-to-face channels is as a general service operation going as far as to develop consulting services seeking to solve any customer challenge, centering on the original core banking functions. Specifically, banks could use their existing banking systems and customer bases as platforms to develop, for example, financial services including trust banking, securities, leasing and credit card services, recruiting and trading company functions, and services to support DX transformation (see Figure 5). In doing so, we believe that banks would need to seek to operate such that they can make the most of digital technology in operational terms and make the greatest possible use of the data they obtain, in order to develop a competitive general service for their individual services. Banks can operate in a way that combines productivity and improving customer satisfaction by understanding trends revealed by the storage and analysis of the massive amounts of customer data that they possess, and by thus improving automation and accuracy (see Figure 6).

In seeking to operate in ways that make the most of digital technology and take fullest advantage of the data banks can obtain, banks will need digital technology personnel to be present broadly throughout their organizations, rather than pursuing specialized careers in specific departments. It is important for financial institutions to have their employees gain broad experience across departments such as corporate planning, operations and IT systems, and for those employees to develop the capacity to discover problems, the knowledge, planning and proposing capabilities to solve those problems, taking the ability to use digital technology to those ends as a given, as well as a leadership perspective.

To do this, banks must first implement digital technology measures that help free up investment capacity and personnel, then leverage those outcomes for the next stage of digitalization. Then, in due course, banks should run as many cycles as resources allow in parallel in which they leverage the implementation of digitalization measures to facilitate the realization of subsequent initiatives, advancing the use of digital technology in stages and realizing a vision of accelerating digitalization (see Figure 7). It is of critical importance for banks to not simply consider individual measures that happen to be easy to do. Instead, they should advance digitalization initiatives with a medium to long-term plan. This plan should be based on an ordering of digitalization measures composed of the anticipated outcomes of each initiative, as well as the new measures that become achievable by leveraging those outcomes. By viewing digitalization initiatives in batches, coming from the vision for the future and the digital technology utilization promotion cycle, banks can effectively integrate these efforts with their wider corporate strategy.