English version

When the Swiss CIO Barometer was launched in 2015, our common objective was, together with our partners Finnova AG and the IFZ of the Lucerne University of Applied Sciences and Arts, to provide a forward-looking vision of the strategies implemented by the IT departments of the Swiss banks. This repeated picture of the market situation is now an integral part of the study that IFZ publishes in the first quarter of each year. Here are some extracts in digital form.  |

Frédéric Barillet
Editor-in-chief

in partnership with

 Survey conducted by Dr. Thomas Ankenbrand
Institute of Financial Services Zug
Lucerne School of Business

and Nicola Louise Illi
Institute of Financial Services Zug
Lucerne School of Business

The IT Balanced Scorecard concept

Introduction

Digitalization and technological progress pose challenges for today’s banks, especially in the field of information technology. Banks are affected by technology on the following fronts (Capgemini & Linkedin, 2018):

  • New business models
  • Faster and more efficient service
  • Transparency and free services
  • Personalization
  • Pressure on margins and fees
  • Predictive modelling and advanced data analytics
  • Innovative distribution models
  • Access to unserved/underserved segments
  • Operational efficiency

In order to efficiently structure the different dimensions of a bank’s IT department, we applied the IT Balanced Scorecard concept by Van Grembergen and Saull (2001), which is based on the original balanced scorecard approach from Kaplan and Norton (1996). Rather than focusing solely on financial targets, the scorecard seeks to develop and monitor a balanced set of nonfinancial measures too, such as the regard for customers, processes, or the degree of innovation.

The four dimensions of the IT balanced scorecard applied for this analysis include:

  • User Orientation
  • Business Contribution
  • Operational Excellence
  • Future Orientation

which again contain three subtopics each. In general, the dimension User Orientation covers the user perception of the IT department, whereas Business Contribution aims to measure its value creation. Operational Excellence deals with the efficiency and effectiveness of IT processes and Future Orientation examines processes and resources required to ensure innovation capabilities. The IT balanced scorecard is suitable to determine and describe strategic directions of a bank’s IT department and was thus chosen as the structural framework of the survey.

The User Orientation dimension (average: 2.89)

The Business Contribution dimension (average: 3.16)

The Operational Excellence dimension (average: 2.92)

The Future Orientation dimension (average: 2.39)

Priority averages of the four dimensions over time

IT Balanced Scorecard

The participants in this survey were asked to rate the priority of each of the three subtopics from the four dimensions included in the IT balanced scorecard on a scale of four, from very low (1) to very high (4).

The results are in line with the results of the survey conducted in 2015 and 2016 with the subtopics concerning Business Contribution achieving the highest priority on average (3.16), followed by Operational Excellence (2.92). User Orientation (2.89), and Future Orientation (2.39) are still the two lower ranking priorities. This outcome indicates a focus on the short term rather than long term orientation of IT strategies of Swiss banks. Across all dimensions, digitization/optimization of business processes is given the highest relevance (3.35), followed by IT security (3.31). The lowest relevance is attributed to the reduction of the time to market of new products and processes (2.55) and the implementation of innovative FinTech solutions (1.64).

In order to compare today’s priorities with the future outlook, the participants were also asked to rate the same subtopics for the next five year period. From a general perspective, all four dimensions of the IT Balanced Scorecard are assigned a higher priority in the next five years. When looking at the temporal development, as shown in opposite and below figure, User Orientation accounts for the largest increase in priority score and overtakes Operational Excellence and Business Contribution. Therefore, activities concerning client experience and usability, multichannel distribution, and mobile applications are expected to be of greater importance in the future.

The results from the Business Contribution dimension show relatively stable developments of its subtopics compared to the previous surveys. However, the priority of the adaption of new regulatory requirements seems to be expected to level off. In the Operational Excellence dimension, although IT security remains a high priority, efforts to reduce IT operating costs are becoming more relevant too. Though the Future Orientation dimension generally seems to be a lower priority, it reveals the largest absolute growth between the value achieved in 2015 and the future outlook in the most recent survey. Overall, the results from the survey indicate the priority of an efficient implementation of new products and processes.

Six Fintech Categories

Ranking of priority of Fintech categories

Current Projects and Future Impact of FinTech

The second part of the CIO Barometer survey examines the bank’s projects and priorities in the field of FinTech. In line with our definition of FinTech, the projects and priorities were divided into six categories:

  • Banking Infrastructure
  • Analytics
  • Investment Management
  • Payment
  • Deposit & Lending
  • Distributed Ledger.

In a first step, participants were asked if they were currently pursuing, have recently completed or have planned projects in one of the predefined categories. The survey revealed that Banking Infrastructure, with solutions such as personal finance management tools or online onboarding systems, holds the first place with the highest average number of current or completed pro jects among the participating parties. The categories Payment, Investment Management, and Analytics all hold relatively similar average scores, with a fair amount of current or completed projects, as well as planned projects. Projects in the categories Deposit & Lending, as well as Distributed Ledger Technology lag behind the rest with only a few projects planned or completed. Overall, the results show a stable development in comparison to the results of the survey conducted in 2016.

In a second step, the participants were asked to rank the FinTech categories according to their priority. The corresponding results are shown in Figure X. A value of “6” indicates the category was given the highest priority, “5” indicates the second highest priority and so forth.

The product area Banking Infrastructure is given the highest future priority with an average value of 4.16. The Analytics area achieves the second highest average (3.99), and thus is evaluated as the second highest priority by the survey participants, followed by Investment Management (3.94), Payment (3.66), and Deposit & Lending (3.00). With an average value of 2.20 Distributed Ledger Technology does not seem to be a future priority of Swiss banks.

When comparing the stated priorities with the current state of implementation of FinTech solutions, the categories Analytics and Payment switch positions. Though there are fewer current, completed or planned projects in the field of Analytics, it is perceived as a higher priority by the participants. The opposite is true for the Payment category.

IT Costs associated with running the bank or changing the bank

IT and non IT related costs in Personnel expenses

IT and non IT related costs in General and Administrative expenses

 

Development of IT related costs

In order to judge the effort and expenses related to IT based innovation in Swiss banks, the participants were asked to state the division of their IT costs into Run-the-bank and Change-the-bank costs.

As expected, none of the participants stated their IT costs as being purely used to either run the bank or change the bank. Opposite figure shows the distribution of the responses: 46 percent of the respondents judge the majority of their IT costs being used to run the bank and guarantee the ongoing operation. A further 43 percent assign 60 percent of their IT costs to running the bank and 40 percent to changing the bank, indicating a higher degree of costs allocated for innovation. Eleven percent of the participants state the IT expenditures seeking to change the bank are higher than their IT expenditures for running the bank, showing a fairly high concentration of costs on innovation.

In addition, the participants were asked to state their nominal personnel, and general and administrative expenses, and the percentage thereof that are IT and non IT related. The weighted averages of the figures received are shown in opposite figure. The difference between the percentages of IT related costs within personnel expenses as opposed to general and administrative expenses stands out. While on average only seven percent of personnel expenses are IT related, IT related costs account for an average of 61 percent of general and administrative expenses. This indicates that a high percentage of IT positions in Swiss banks may be outsourced and thus reduce the percentage of IT related costs within the labour costs.

Conclusion

Digitization/optimization of business processes and IT security are the main focus of the IT departments at Swiss banks. However, activities concerning the user orientation are gaining in relevance and are expected to assume a leading role at Swiss banks in the future, based on the opinions of the survey participants. Currently, corresponding activities are evaluated with similar relevance as the activities concerning the efficiency and effectiveness of IT processes.

The primary focus of Swiss banks on evolutionary rather than disruptive transformation is also reflected in the priority ranking of FinTech, where Banking Infrastructure achieves the highest and Distributed Ledger Technology the lowest score. The allocation of money also reflects the evolutionary development path. Notable is the low percentage of IT related personnel expenses at seven percent. This reflects the high outsourcing level and the low level of IT competencies remaining with the banks, which could lead to difficulties in adjusting to current and future challenges.

Methodology and Statistical information

Bank groups

Cantonal banks 23%
Regional & Saving banks + Raiffeisen 46%
Other banks incl. Big banks 11%
Private banks 20%

Balance sheet sizes

Less than CHF 1 bn 34%
From CHF 1 bn to 2,9 bn 20%
From CHF 3 bn to 9,9 bn 31%
From CHF 10 bn to 24,9 bn 9%
From CHF 25 bn to 49.9 bn 3%
CHF 50 bn and more 3%

AuM

Less than CHF 1 bn 28%
From CHF 1 bn to 2,9 bn 23%
From CHF 3 bn to 9,9 bn 29%
From CHF 10 bn to 24,9 bn 14%
From CHF 25 bn to 49.9 bn 3%
CHF 50 bn and more 3%

For The Swiss CIO Barometer 2019 survey, a total of 226 individuals in charge of IT operations in Swiss banks were contacted in October 2018. The final dataset consists of 35 participants, corresponding to a response rate of 15 percent.

As illustrated by our charts, cantonal banks, regional & savings banks, Raiffeisen, and private banks were among the participants in the survey. A closer look at the distribution of the balance sheet size as well as the assets under management (AuM), also illustrated, shows that these two key figures are below CHF 10 billion for the large majority of the participants.

As the sample size is relatively small and the distribution of the survey participants among the different types of banks, their total balance sheets and assets under management differ from the basis population, the survey cannot be considered representative, though it nevertheless provides indications on the tendencies of Swiss banks’ IT strategies and challenges.