IN BRIEF:
• The banking industry faces a growing skills gap as demand for expertise in data science, cybersecurity, and software development surges to support digital transformation efforts.
• While automation and AI are seen as productivity drivers, banks are still grappling with how to effectively integrate these technologies and scale their operations.
• The most competitive banks will adopt a strategic approach to workforce transformation, prioritizing upskilling and reskilling employees to ensure the integration of new technologies and improved customer experiences.
The banking industry has long been at the forefront of technological innovation, with an increasing need for a highly skilled, tech-savvy workforce as the shift to digital continues. Digital transformation in banking goes beyond just updating legacy systems and adopting new technologies. It involves rethinking entire processes and the way banks interact with customers. One of the most significant challenges banks now face is closing the skills gap.
According to the EY Work Reimagined Survey,57% of Chief Risk Officers (CROs) globally consider talent to be one of the most significant long-term risks facing the banking industry. Additionally, 52% of respondents reported challenges in attracting the right talent to meet the demands of digital transformation. Digital transformation in banking is about closing the skills gap, using AI and automation, upskilling employees, and balancing workforce needs with cost discipline to help employees focus more on customer-centered roles.
This is the second article in a series that explores the salient concerns of the banking and financial industry.
CLOSING THE SKILLS GAP
Traditional banking roles are rapidly evolving, and new skills are required to design and implement solutions that offer a consistent and connected customer experience.
However, banks are struggling to close the skills gap. This is especially prominent in areas such as data science, cybersecurity, and software development — roles that banks historically didn’t need. Though banks increasingly become technology-enabled and data- driven, they also remain highly reliant on human talent. To maintain their competitive position, banks must prioritize both technology and talent, not one or the other. Even if banks can develop and secure the talent, it is important to note that the half-life of skills is shortening. Aside from foundational and technical skills, banks are also prioritizing digital acumen, adaptability in a changing environment, and deep specialization in at least one domain, according to the EY Institute of International Finance global bank risk management survey.
Moreover, banks today are competing with other industries for the brightest minds in these fields, making technology recruitment, training, and retention a critical focus. It would be instructive to note whether transformation and modernization initiatives will allow the banking sector to acquire a certain level of magnetism in connecting with employees and attracting new ones, something that the technology and startup sectors enjoyed for a time. Without the right talent, the digital transformation that banks hope to achieve may face significant roadblocks.
EMBRACING AI AND AUTOMATION
Technology modernization and adoption will continue to significantly drive transformation for Philippine banks within the next five years, underpinned mainly by cloud, data and AI.
Embracing AI and automation presents a significant opportunity for banks to increase efficiency and enhance customer service. The most competitive banks will view this new wave of technology as a chance to streamline operations, with machines expected to handle up to 10-25% of tasks across various bank functions. Automation will not displace workers but rather free them up to focus on higher-value, customer-centric roles.
However, to fully capitalize on this potential, banks need to take a strategic and deliberate approach to design and implementation. While many have launched AI and automation pilots, the lack of a systematic approach has led to scalability challenges and underwhelming results, highlighting that the full benefits of these technologies are yet to be realized.
There is a process that banks can adopt to maximize value creation, where use cases and initiatives are evaluated, ranked and developed based on strategic alignment, impact, and feasibility, allowing informed decision-making for resource allocation and implementation. This process will also benefit from embedded agility, particularly as innovation curves and technology developments move. For instance, some banks are looking at exploring concurrently generative and agentic AI — a union of creation and action — that will require not only broad and deep skills but also ethical considerations and accountability.
UPSKILLING AND RESKILLING EMPLOYEES
Studies show that businesses that prioritize human capital during digital transformation are more successful. According to EY, organizations that focus on upskilling and reskilling employees are 2.6 times more likely to succeed in their digital transformation efforts. For banks, this means prioritizing workforce development to ensure that employees can add value in a digital-first environment.
To successfully navigate this digital revolution, banks need to adopt a strategic approach to workforce transformation. This means not only recruiting new talent but also retraining and reskilling current employees. The introduction of AI and automation will require banks to redesign workflows, with a focus on optimizing processes for machines rather than humans. Banks will also need to merge specialized domain expertise with in-house capabilities to create a seamless, automated workforce.
Skills development is only one part. Banks looking to channel the talent flow their way also need to respond to employee needs in culture and total rewards.
WORKFORCE TRANSFORMATION AND COST DISCIPLINE
Amid the growing demand for specialized talent, banks must balance workforce transformation with cost discipline. To remain competitive, many banks are reducing headcounts while investing in technology to drive efficiency. This includes attracting talent in fields like AI, cloud computing, and cybersecurity, which often demand higher compensation.
Balancing these investments with cost discipline is crucial. Banks must ensure that they are not only investing in technology but also managing costs effectively to maintain profitability. This requires a strategic approach to workforce planning, where banks identify the skills needed for the future and invest in training and development programs to build these capabilities internally.
THE ROLE OF LEADERSHIP IN DIGITAL TRANSFORMATION
Leadership plays a critical role in the success of digital transformation initiatives. Bank leaders must foster a culture of innovation and continuous learning, encouraging employees to embrace new technologies and adapt to changing roles. This involves clear communication about the benefits of digital transformation and the opportunities it presents for career growth and development.
Leaders must also be proactive in addressing the challenges associated with digital transformation, including managing risks such as cybersecurity threats and data privacy concerns. By taking a proactive approach to risk management, leaders can ensure that digital transformation initiatives are implemented safely and securely.
THE FUTURE OF BANKING IN A DIGITAL WORLD
As digital technologies continue to transform the banking industry, embracing AI and automation, upskilling and reskilling employees, and balancing workforce transformation with cost discipline will be critical to success. The most competitive banks will be those that view digital transformation not as a threat to their workforce, but as an opportunity to enhance their people’s potential.
By investing in talent, embracing new technology, and fostering a culture of continuous learning, banks can position themselves to thrive in the digital age. The future of banking lies in the ability to adapt to technological advancements and leverage them to improve customer experiences, streamline operations, and drive growth.
CHARTING THE PATH FORWARD
Digital transformation is reshaping the banking sector, and it is only an interim stage towards a combination of a project, platform and network economy. Banks must close the skills gap, embrace AI and automation, and prioritize upskilling and reskilling employees to stay competitive.
By fostering a culture of innovation and continuous learning and balancing workforce transformation with cost discipline, banks can enhance their workforce’s potential and position themselves for long-term success in the digital age.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Christian G. Lauron is the financial services organization (FSO) leader of SGV & Co.