Australian banking executives spend on cybersecurity is set to outpace artificial intelligence (AI), against the backdrop of talent in these areas being the most difficult to recruit – and mounting pressure to reduce cost. This shift in strategic priorities are part of key findings revealed in the second edition of the Infosys Bank Tech Index.
Cybersecurity is a priority
Australian banks indicate a 6.2% increase in their cybersecurity spend, which is higher than the rest of the world. This focus allows Australian banks to catch up to their global peers – with survey results showing that cybersecurity accounts for 17% of budgets in Australia versus 24% among banks in the rest of the world. As cyber criminals continue to target the Australian financial services and insurance sectors, the average cost of a data breach in 2023 reached AU$5.6 million. The fallout from the reputational damage after a data incident has also been career-ending for some leaders. A data breach at Equifax, an American consumer credit reporting company, led to the resignation of its CEO and other senior executives and resulted in a multimillion dollar fine by regulators.
As Australian banks strengthen their defences and get ready to implement new regulations, such as CPS 230, which comes into effect in 2025 with a goal to improve cyber resiliency, the focus and investment in cybersecurity is expected to grow. From the work we do with our clients worldwide, it is clear that cybersecurity must be an integral part of every stage of the business lifecycle. For Infosys, it is about being secure by design, secure by scale, and secure by future. Given the pace of rising cyberthreats within banking, leaders agree that it would be myopic to do less.
AI’s progress impacted by talent
Global spend by banks on AI is growing faster than their investment in any other tech as AI continues to reveal rich potential. AI, combined with the power of cloud, is delivering transformational outcomes for banks across both growth and efficiency. Spend on AI is expected to rise among Australian banks by 3.7% – which is slower than the 6.7% growth expected among global banking peers. The technology also accounts for 13% of budget allocation in Australia, lower than the average allocation of 20% among banks in the rest of the world.
One reason why Australian banks lag on AI could be the challenge to find talent. AI topped the technology difficulty rankings, with a difficulty score of 31 (a higher score means the skills are harder to acquire). This was higher than the global average of 27 and outranked cybersecurity and cloud in difficulty, confirming a trend identified in the Infosys Generative AI Radar. In terms of skills, AI talent accounted for 19% of Australian tech staff recruitment, against the global average of 29%. In our recent work with Danske Bank to accelerate AI adoption, the role of talent with domain expertise was a key element for success.
Cost optimisation transitions to cost transformation
Since the release of the first index, Australian banking executives indicate a growing focus on reducing costs. Banks often struggle with cost optimisation because the adoption of this strategy is typically isolated to periods of downturn or crisis. For the most part, bankers have a strategy of growth. Switching strategy can be challenging and subsequently results from cost optimisation tend to be limited, predominantly remaining within siloed areas of a bank – due to a lack of consistent commitment from leadership and a reluctance to tackle large systemic changes. Research shows that only 26% of IT leaders fully achieve the returns they expected. Further, cost reduction initiatives focussed on the short-term may impact the trusted reputation of a bank among internal stakeholders, customers and the communities they serve.
Through our work with banks, it is clear that cost transformation must be a committed journey to deliver sustainable, positive outcomes. For example, Bendigo and Adelaide Bank embarked on a transformation programme to become more efficient and make processes simpler. They have streamlined the number of core banking systems, moved to cloud and automated processes. The bank has reduced its cost to income ratio from 63% in FY20 to 55% in FY23 and is on track to achieve its medium-term objective of 50%. Interestingly, Forrester's 2023 Customer Experience Index found that Bendigo and Adelaide Bank had the most loyal customers: 81% plan to stay with the bank, 71% say they’ll spend more with it, and 65% will advocate for it.
Banks that lead in cost optimisation embed it into strategy, across their operations. Their cost transformation is planned in phases, with cumulative results benefitting the bank as a whole, over a period. Quick wins can for example be achieved with bots, automation and the right mix of talent sourcing. One phase of cost saving funds the next, with incremental savings reducing the need for additional investments. Self-funded and continuous cost transformation of this nature keeps the bank efficient and fuels greater innovation.
This effect of cost transformation driving innovation is also evident within AI strategy. Although AI demands an initial investment, a strategic commitment to this technology helps banks rapidly increase efficiency and productivity. For example, Discover Financial Services uses generative AI at its contact centres to answer customer queries quickly and improve productivity. In another instance, Morgan Stanley has armed tens of thousands of its financial advisors with AI to provide personalised financial advice and recommendations. Spanish Lender BBVA is working on around 100 generative AI use cases to increase productivity and process efficiency while stimulating innovation.
2024 is shaping up to be a watershed year for banks with the ability to process and analyse vast stores of data, expand AI adoption, address cybersecurity risks and reduce costs. Banks with the right strategies and partners are confidently making decisions that enhances innovation and transforms the efficiency of their operations, workforce, products, and customer experience. This benefits all stakeholders in the long term and gives the bank a strong competitive advantage.
The Infosys report, Infosys Bank Tech Index, includes data from the referenced survey as well as further insights.
About the Author:
Andrew Groth
Executive Vice President
Industry Head – Financial Services,
Region Head – Asia Pacific
Andrew is the Region Head for Infosys AsiaPac and is part of the Global Financial Services Executive. Having lived and worked across Europe, Asia Pacific and the United States, Andrew has rich strategic experience with many of the largest organisations in the world – including major financial institutions. Andrew is a Senior Associate of the Australian and New Zealand Institute of Insurance and Finance, a Graduate of the Australian Institute of Company Directors and holds an MBA from the Australian Graduate School of Management.