Cyprus and global banking sectors are facing a cocktail of challenges that lead to radical change, banking expert Chris Davis told the Cyprus News Agency on Sunday, underlining that enhancing the competitiveness and sustainability of banking institutions goes hand in hand with investing in technology, offering personalised customer services, enhancing cybersecurity and finding new sources of revenue.

Managing director of Kyndryl Ireland, and an expert on banking technology, Davis was in Cyprus as a keynote speaker at the Annual Meeting of the Association of Cyprus Banks last week.

Like all sectors, banking is currently responding to major global challenges that will shape and radically change it, he said. There are six main pillars guiding the evolving banking landscape: customer demands, economy, regulations, technology, environmental, social and governance (ESG) requirements – sustainability, changes in the workforce.

He pointed out that one of the megatrends observed in the banking sector is the transition from large universal banks to financial institutions that integrate their financial services capabilities into experiential end-to-end customer journeys.

“It’s safe to say that the days when banks could exclusively own the end-to-end customer journey are rapidly diminishing,” he said.

According to Davis, banks’ heavy reliance on technology can only increase, bank branches are declining rapidly, and the use of cash is shrinking rapidly.

Banks, he said, should be at the forefront of tackling the big issue of climate change, from managing their own carbon footprint to ensuring they actively sponsor clean energy businesses. “This will be a major issue for the next decade,” he said.

On the regulatory front, Davis noted that there is a trend to try to ease requirements, especially on capital, to increase competition and improve efficiency, but this is under review after the recent banking crisis in the US and the collapse of regional banks.

Davis noted, however, that no one can ignore the “elephant in the room,” which concerns the advent of artificial intelligence.

“While we see new businesses emerging based on this new technology and piloting the services of FinTechs and other banks, it is important that AI technologies are integrated into an organisation’s data strategy and used with caution. With great power comes great responsibility. Therefore, we need to ensure that this technology – and artificial intelligence in general – is ethical and explainable/understandable,” he said.

As for the next step in the transformation of banks, Mr. Davis believes that global banks providing a full range of services will be a thing of the past, with specialisation and targeted partnerships increasing.

Regarding the banking sector in Cyprus and the steps that need to be taken, Davis said that local financial institutions recognise the importance of customer experience and we are monitoring efforts to improve it, prioritising the digital customer experience and utilising data analytics as strategic priorities.

He noted that based on the study, conducted by EY on behalf of the Association of Cypriot Banks The Future of Banking in Cyprus, Cypriot banks have spent a total of more than €230 million on technology and digital transformation programmes in the last three years.

According to Davis, as in the rest of the world, Cypriot banks are working to address the disruption to their operating model caused by the advent of digital banks, electronic money institutions (EMI), which according to data have captured between four and eight per cent of bank revenues in the eurozone. As he said, although there is no data for Cyprus, “bank executives recognise that competition from fintechs is real.

“With all this in mind, banks around the world, including Cyprus, are taking bigger or smaller steps towards digital transformation, but there is still a long way to go,” he concluded.