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Bank CTO 2.0: redefining what success looks like

A wake up call.

That’s what the last few years have been for the banking industry.

Backbase,
Backbase is on a mission to re-architect banking around the customer.

Regulatory challenges, the turmoil of a pandemic, rising inflation, reduced consumer trust, competition from non-banks and so on have chipped away at profitability and market share. As dramatic as it sounds, the banking sector is facing an existential threat.

A 2023 McKinsey report sums up the sobering reality: “Key measures for banks are at a historical low point. The sector’s price-to-book value has fallen to less than one-third the value of other industries. [...] While banks have pushed for great improvements recently, margins are shrinking—down more than 25 percent in the past 15 years and expected to fall to 30 percent, another 20 percent decrease, in the next decade.”

Banking leaders are realizing that they have to make some pivots — and they’re looking to technology for the answers. That means bank CTOs must ask themselves: what do I need to do to rise to the challenge?

Why bank IT leaders need to undergo a reinvention

Let’s leave tactics aside for a moment and address a more fundamental matter: your mission.

The reality is that your remit as a tech leader has already evolved. It’s no longer sufficient to excel in traditional IT management if you plan to stay at the top of your field. In order to keep up with market pressures, financial institutions require visionary leadership — progressive technologists who double-hat as key business strategists. 

By acting as this bridge, you have the mandate to become a transformational leader for your organization — to prepare for the future by aggressively leveraging technology to drive business value.

But are you there yet? Deloitte's 2020 Global Technology Leadership Study of over 1,300 senior executives revealed that more than half of them act as "trusted operators," focusing on IT efficiency, reliability, and cost containment. However, only 11.6% are considered digital vanguards — leaders who successfully align their business and digital strategies.

And yet, this change is more necessary than ever. In fact, according to a McKinsey survey, 57% of CIOs at top-performing organizations say their senior technology leaders are very involved in strategic planning, versus 17% in the bottom quartile. Top performers were also 4.3x more likely than their counterparts at the bottom to have their IT and business teams collaborating together to both develop strategy and deliver technology.

Here’s the thing: the goalposts have already been moved for you. The question is whether you get in front of it to reframe your mission as a technology leader — or find yourself on your heels and resorting to reactive measures. Here’s why.

How to rewrite the narrative: from cost center to value driver

“We need to reduce our IT budget” is a sentence we know you despise, but probably hear all too often.

Unfortunately, reducing costs across the board will always be a priority. Even before the onset of the Covid-19 pandemic, profit margins were being squeezed by low interest rates, tighter regulation, and competition from digital entrants to the sector. The pandemic exacerbated this issue, leaving banks scrambling to deliver new digital IT solutions faster and at lower cost.

This is where positioning yourself as a transformational leader, more than an IT chief, makes all the difference. You have the opportunity to rewrite the narrative of IT as a cost center to one, instead, that’s a driver of business growth. And in doing so, you’ll shift management focus on IT spend away from a myopic view of cost-cutting and performance optimization, towards one which looks at how technological investments today lead to digital dividends tomorrow.

But more importantly, it forces you to adopt a strategic approach to cost optimization. While it's essential to manage costs, focusing purely on cost reduction can hinder innovation and long-term growth. In fact, cutting corners may result in higher costs in the long run, because it leads to decisions that favor short-term gains — such as patchy solutions and workarounds — which eventually develop into technical debt that’s extremely expensive and requires a lot of effort to maintain.

Instead, in your newly evolved role, it’ll be necessary to evaluate the ROI of technology initiatives, prioritizing projects that deliver the most significant business impact, and reallocating resources to drive innovation.

Your executive management wants you to act now

The good news is that the more strongly you embrace the perspective of a transformation leader, the more support you’ll have from executive management. Gone are the days where IT is seen as a support function. Executive boards in financial institutions recognize that today, technology is at the heart of every successful organization — and they’re prepared to invest if it meets business goals.

According to Gartner, for the first time in a decade, CEOs and senior business executives in financial services are focusing on technology over top-line growth and profitability as a strategic business priority. And within technology investments, the priorities are digitalization and transformation, with an emphasis on ensuring that customers and employees have flexible technology capabilities.

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(Source: Gartner, “2022 CEO Survey Insights for Financial Services Leaders: Technology Comes First”, 2022)

In other words: your executive leadership team is counting on you to lead the organization through its highest strategic initiative. Combining tech-forward transformation with a strong focus on how it’s tied to business growth will propel you forward as the visionary leader that your organization needs.

The career-defining evolutionary leap for bank CTOs

Honestly, has there ever been a more exciting — or stressful — time to be a technology leader of a bank?

With digital technologies increasingly powering future business strategy in banking, a CTO’s ability to maximize ROI on tech investments will determine the winners and losers in the banking landscape. It’s a critical moment for you to elevate your business value and strategic influence, and take on the mantle of transformational leader in your organization.

But where do you begin? There’s a lot of work to be done — but you don’t have to figure it out alone. The first step is to take stock of the obstacles in your way. In the next article in this series, we’ll look at what’s holding tech leaders back from focusing on what matters: driving transformation.