While digital native banks are able to innovate and roll out products without spending time and money solving the problems of the past, traditional banks are reaching a point of digital transformation fatigue. Incumbents find themselves in a permanent state of digital transformation, anchored by their outdated legacy IT systems, and unable to keep up with consumer demands. What can banks learn from their digital counterparts in their race to digitisation? What can they do to compete with the rising digital challengers? This article explores three strategies that some of the world’s biggest banks are deploying to become more agile and consumer centric including:   1. Balancing front-end innovation with digitisation of the back end, 2. Developing subsidiary digital-only alternatives to serve niche markets, and 3. Exploring new avenues for growth through the creation of banking ecosystems.

Latin America had a late start in the digitisation of financial services but has ramped up its efforts in the past five years, making up for lost time. There is now a bustling ecosystem with over 1,166 financial technology (fintech) start-ups in the region. Governments have also recognised the potential of digitisation and have developed specific regulation to level the playing field between top-tier banks and new entrants. However, banks have faced significant challenges as legacy infrastructure and organisational barriers slow down their digitisation efforts and hinder their ability to cater to lower income customers. 

This report—produced by The Economist Intelligence Unit with the support of Mambu— focuses on traditional banks’ role in the digital transformation of financial services in the region. Based on a survey of 105 banking executives in Argentina, Brazil, Chile, Colombia, Mexico and Peru, the report explores banks’ journey towards digitisation, the role that the Covid-19 pandemic has played in their digital transformation, and the ways in which banks are interacting with the growing fintech sector and have the potential to increase financial inclusion in the region. The survey found that:

Digital transformation is well underway: Ninety-eight percent of banking executives say their organisations have a digital transformation strategy, and fifty percent categorise the implementation of this strategy as advanced

The Covid-19 pandemic has forced the sector to rethink how it runs its business, but barriers to digitisation persist: Eighty-four percent of banking executives believe that the Covid-19 pandemic has forced the retail banking sector to rethink how it runs its business. However, full digitisation requires broad changes in IT infrastructure and organisational structures that cannot be easily implemented in the midst of a crisis.  

Digitisation as a driver of financial inclusion: Beyond the diversification of products and services for existing customers, banks need to focus on increasing their customer base to remain competitive. While 55% of banking executives cite current economic and market conditions as the main challenge to acquiring new customers, their digital counterparts have seen a significant uptick in account opening.

Fintechs are complementing traditional banking models. Eighty-seven percent of bankers agree that fintechs are forcing retail banks to rethink how financial services are provided. In particular, fintechs’ ability to leverage digital infrastructures to improve operational efficiencies and lower service fees is highlighting the value of digitisation in driving greater financial inclusion.     

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In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.

Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.

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Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.