Studies confirm: Digital maturity determines the crisis resilience of financial service providers

Since the start of the coronavirus crisis, companies in all sectors have been looking at how they can position themselves to respond more robustly to pandemics. It is increasingly being emphasized that companies that have already largely digitalized their processes are better able to run their business than those that have not, despite restrictions both internally and on the customer or supplier side.

There are good reasons for this:

Pandemics are regularly countered with contact restrictions. Where people meet and (have to) work "on site" is where the greatest "impacts" occur, as it is not possible to produce or "manage" anything. In the case of financial service providers, it is the typical application, offer, request and contract processes that are impaired. The more processes are automated and, in the best case, function without the involvement of humans, the fewer targets there are for contact restrictions. If "ubiquity", i.e. the location-independent provision of services, can be achieved - without the need for human intervention - then you are one of the winners.

This is confirmed by the performance and responsiveness of the "big digital players". Tech giants such as Amazon achieved all-time high profits in the extraordinary crisis year of 2020 of all years, while Facebook - because it is "digitalized through and through" - proclaimed consistent working from home as part of its long-term pandemic strategy at an early stage.

This correlation is also evident in the banking, insurance and other financial services sector - and was part of many digital summits and panel discussions in 2020.

Finally, our experience in working with financial service providers during the coronavirus pandemic also shows that the maxim "increasing digitalization strengthens crisis resilience" is valid: both IT projects and innovation topics are being consistently driven forward.

Despite the clear evidence, we wanted to go one step further and find out whether the thesis can now be substantiated - especially for the financial services sector(s). For this reason, we researched suitable studies on the topic and present the most important results briefly below.

1. The Deloitte study "Digital banking maturity 2020" demonstrates the positive impact of digitalisation on crisis resilience in the banking market

The global study "Digital Banking Maturity 2020" [1] by the consulting firm Deloitte examined the digital maturity of 318 banks from 39 countries, including a dozen from Germany. The banks were divided into four categories according to their level of digitalization: digital champions, which represent 10% of the top banks, smart followers, adopters and digital laggards.

According to Deloitte partner Jürgen Lademann, one of the most important findings of the study is the fact that the digital champions were able to react more quickly and appropriately to changing conditions, even during the COVID-19 crisis. The respective level of digital maturity was a clear driver here.

2. The studies by EY and TCS prove: the link between degree of digitalisation and crisis resilience also applies to the insurance market

If we stay in the financial services provider market and shift our perspective from banks to insurance companies, we also find strong evidence that the link between digitalization and crisis resilience is valid. Perhaps even more so than with banks, insurance processes are dependent on the documentation of contracts or damage reports, for example. Compared to other industries, insurance companies have always been considered "not so digital", but here too the coronavirus pandemic has significantly accelerated digitalization. Insurance companies are now rapidly adapting to the realities of the "new normal", not just in a few lighthouse projects, but across the board - partly under their own steam and partly through cooperation.

The results of two recent studies show how insurance companies are responding to the crisis in concrete terms.

According to the results of the EY study "Insurance bEYond 2020"[2], insurance companies are increasingly intensifying their collaboration with banks in order to jointly develop innovative business models and thus overcome the challenges triggered by COVID-19. The study also shows that a large number of insurers are defying the crisis by collaborating with innovative tech companies ("InsurTechs"), investing in them or even buying them up in order to realize - and monetize - unique selling points.

The TCS study "Digital Readiness and the Pandemic: Assessing the Impact"[3] comes to a similar conclusion. According to TCS, 89% of the insurance companies surveyed invested in further digital transformation during the coronavirus crisis, more than in any other industry surveyed - even though half of them experienced a decline in sales as a result of the pandemic.[4]

These two studies also clearly show the correlation between crisis resilience and the degree of digitalization in the insurance market. Although the study design at TCS is not as clearly based on the causality between crisis resilience and digitalization as the Deloitte study, the conviction of insurance companies that they can better overcome the crisis by increasing their level of digitalization is also clearly expressed here.

What does the situation look like outside the financial services market? Here, too, there are clear indications. This is illustrated by the following two studies:

3. Telekom study and Bitkom study: the correlation between the degree of degitalization an crisis resilience applies to all sectors

Telekom study: "Digitalization index for SMEs 2020/2021"

This study focuses on German SMEs: more than 2,000 small and medium-sized enterprises were surveyed for the study "Digitalization Index for SMEs 2020/2021"[5]. The aim of the study was to find out how these companies have reacted to the coronavirus crisis and whether or in relation to which challenges or risks they are adapting their investments.

According to the results of the study, digital maturity played a decisive role in overcoming the crisis for the digital leaders (i.e. the 10% of the most digitized companies): 77% of them stated that they were able to react quickly and flexibly to the crisis. By comparison, only 36% of other companies described a comparable effect.

Figure 2: How companies reacted to the crisis. Source: "Digitalization Index for SMEs 2020/2021", Deutsche Telekom

In this context, the statement by Hagen Rickmann, Managing Director Business Customers at Telekom Deutschland, was to be expected: "It's no surprise: companies with a high degree of digitalization get through crises better."

The results also show that almost half of the companies are expanding their digital offerings and want to drive forward the digitalization of their processes. This is a positive development.

Bitkom survey: "Digitalization of the economy - effects of the coronavirus pandemic"

A representative survey by the digital association Bitkom, conducted among 605 companies from all sectors, delivers similar results.

Figure 3: Digitalization is gaining massively in importance. Source: "Digitalization of the economy - effects of the coronavirus pandemic", Bitkom Research 2020

Not only has digitalization gained massively in importance as a result of the coronavirus pandemic: 70% of companies whose business model is already digitalized and 65% of companies whose business processes are already digitalized have come through the COVID-19 crisis better than the corresponding latecomers or adopters. In this context, Bitkom President Achim Berg says: "Companies can be immunized against crises beyond corona by being consistently digitally positioned".

4. Summary and practical issues

In summary, we can clearly see on five levels that an increasing degree of digitalization improves crisis resilience for financial service providers.

• Logic/mechanics per se
• Performance/behavior of the digital tech pioneers
• Studies for the banking sector
• Studies for the insurance sector
• Cross-industry studies

Even if this is not a scientific "proof", the signal for practice is clear. Anyone who still has doubts as to whether the link between the degree of digitalization and crisis resilience actually exists should put them aside. There are concrete ways to "immunize" the business.

afb Application Services has been a pioneer in automating/digitizing business processes in the financial services sector for 25 years. The "immunization" is very effective if the following two areas can be fully automated/digitized: Digital Customer Onboarding on the one hand and Digital Document Management on the other.

If you would like to find out what this looks like in practice, please read our business cases.

5. Conclusion

To quote Bitkom President Achim Berg once again: "Companies can be immunized against crises beyond corona by being consistently digitally positioned." In view of the clear and strong correlation between the degree of digitalization and crisis resilience, this sentence should actually be taken up by financial service providers as an immediate call to action.

More than ever, it is vital for financial service providers to be as digital as possible. They should therefore create the technological prerequisites as quickly as possible (with a modern IT architecture and modern interfaces (APIs based on web/micro services). Precise project planning and implementation usually requires a good consultant who uses their best-practice knowledge to define the project scope and implement it consistently. And: the solution should be modular, cross-channel and quickly adaptable so that new, innovative functionalities - in line with customer wishes or process requirements - can always be implemented promptly.

It is therefore not only important for "survival" that you do something, what you do and how you do it, but also with whom you do it.

Sources

[1] Deloitte study "Digital Banking Maturity 2020" (2020) www2.deloitte.com/content/dam/Deloitte/ce/Documents/financial-services/ce-digital-banking-maturity-2020.pdf

[2] Ernst & Young study "Insurance bEYond 2020" (2020) insurlab-germany.com/wp-content/uploads/2020/09/insurance-beyond-2020.pdf

[3] Tata Consultancy Services study "Digital Readiness and the Pandemic: Assessing the Impact" (2020) www.tcs.com/business-impact-survey-2020

[4] IT Finance Magazine (2020): "Study: Despite decline in sales due to Corona, insurers continue to invest in digitalization" www.it-finanzmagazin.de/studie-corona-versicherer-112183/

[5] Telekom study (2020): "Digitalization index for SMEs 2020/2021" www.digitalisierungsindex.de