Facing a cocktail of challenges that lead to radical changes, both the global and Cypriot banking sectors are in a state of transformation, according to banking expert Chris Davis, who spoke to Cyprus News Agency. Davis emphasized that enhancing competitiveness and sustainability of banking institutions goes hand in hand with investing in technology, providing personalized services to customers, strengthening cybersecurity, and exploring new sources of revenue.

As the managing director of Kyndryl Ireland and a technology expert in the banking industry, Davis visited Cyprus as the keynote speaker at the Annual General Meeting of the Association of Banks in Cyprus last Tuesday.

During his visit, Davis addressed questions from CNA regarding the future outlook for the banking sector.

He stated that, like all industries, the banking sector is currently responding to significant global challenges that will fundamentally shape and change it. There are six key axes guiding the evolving banking landscape: customer demands, the economy, regulations, technology, environmental, social, and governance (ESG) requirements for sustainability, and changes in the workforce.

Davis pointed out that one notable trend in the banking sector is the shift from large universal banks to financial institutions that incorporate their capabilities into the realm of financial services through experiential customer journeys.

"We can safely say that the days when banks could exclusively control the end-to-end customer journey are rapidly diminishing," he emphasized.

According to Davis, the banks' heavy reliance on technology will only increase, bank branches are rapidly decreasing, cash usage is rapidly shrinking, with the pace accelerating after the COVID-19 pandemic.

"Therefore, resilience in their operational models is a critical success factor for banks and is a priority for regulatory authorities worldwide," he said, referring to the European DORA regulation and its UK version on operational resilience.

Moreover, Davis added that banks should be at the forefront of addressing the major issue of climate change, tackling a range of topics from managing their own carbon footprint to ensuring active support for clean energy businesses. "This will be a major theme for the next decade," he added.

In the regulatory field, Davis noted a trend toward easing requirements, especially regarding capital, to increase competition and improve efficiency. However, this is under review following the recent banking crisis in the US and the collapse of regional banks.

However, Mr. Davis emphasized that one crucial aspect that cannot be overlooked is the significant impact of artificial intelligence on the banking sector.

"While we observe the emergence of new businesses leveraging this transformative technology and piloting advancements in the services provided by FinTechs and other banks, it is imperative to integrate artificial intelligence technologies into the organization's data strategy while exercising caution. We must recognize that great power comes with great responsibility. Hence, it is vital to ensure the ethical utilization of this technology, with transparency and the implementation of appropriate control mechanisms," he stated.

Regarding the next step in the evolution of banks, Mr. Davis believes that global banks offering a comprehensive range of services will become a thing of the past, as specialization and targeted collaborations increase.

He cited the collaboration between Apple and Goldman Sachs in the United States as an example. In this partnership, Apple can leverage its enormous balance sheet with great success, utilizing Goldman Sachs' banking license and capabilities. Apple, he explained, doesn't need to create its own banking compliance operations, etc., and instead focuses on what it does best. Similarly, Goldman Sachs can provide services to clients it wouldn't otherwise reach.

As for the banking sector in Cyprus and the necessary steps to be taken, Mr. Davis said that Cypriot financial institutions recognize the importance of customer experience and are monitoring efforts to improve it. They prioritize the digital experience of customers and utilize data analytics as strategic priorities.

He noted that based on the study conducted by EY on behalf of the Association of Cypriot Banks titled "The Future of Banking in Cyprus," Cypriot banks have collectively invested over 230 million euros in technology and digital transformation programs over the past three years. He further emphasized that Cypriot banks are gradually transforming their cost base following the financial crisis of 2013 and more recently the COVID-19 pandemic. They focus on optimizing their networks and processes, as well as reducing personnel costs.

According to Mr. Davis, like the rest of the world, Cypriot banks are working to address the disruption caused to their operational models by the emergence of digital banks and electronic money institutions (EMIs). Based on available data, these institutions have captured between 4% and 8% of banking revenues in the eurozone. Although there is no data specific to Cyprus, "banking executives acknowledge that competition from fintechs is real."

"With all of this in mind, banks around the world, including those in Cyprus, are taking bigger or smaller steps toward digital transformation, but there is still a long way to go," he continued.

When asked about it, Mr. Davis highlighted five strategic pillars for banks to enhance their competitiveness and resilience amidst the rapidly evolving banking landscape.

These pillars include investing in technology and digital infrastructure to provide modern banking services and improve customer experience, strengthening cybersecurity protocols to protect customer data, preventing fraud and safeguarding against cyber attacks, focusing on customer needs and preferences by offering personalized services, tailored financial solutions, and effective customer support, exploring new sources of revenue, and attracting and retaining top talent specializing in digital banking, cybersecurity, risk management, and emerging technologies.