white papers

Digitalisation in the financial sector

Digitalisation in the financial sector
Jeroen van Oerle - Portfolio Manager

Jeroen van Oerle

Portfolio Manager
Christian Vondenbusch - Portfolio Manager

Christian Vondenbusch

Portfolio Manager

Modern financial services require a strong digital strategy, and stakeholder demand for digital financial services is rising. Digitalisation has transformed from something which is nice to have, into a must-have.

During the first quarter of 2020, the C-suite of financial institutions were mainly occupied with tough macro-economic conditions (as in low interest rates and decreasing Net Interest Margins), increased regulatory costs and increasing competition from FinTech initiatives, shrinking the profit pie. Whenever digitalisation was discussed with investors, management teams often tried to convince shareholders that investments into their digital strategy would result in cost savings from day one of completion. Those with a practical view on technology implementation know that this should never be the argument to overhaul an IT system, since cost savings are temporary until the next upgrade cycle comes. Investing in digitalisation is investing in business continuity and the costs associated with such an investment have a return component in the form of the future ability to do business. In the second quarter of 2020, all eyes were turned to digital strategy and the question of how to survive in a world which became digital-first overnight.

Digitalisation has transformed from something which is nice to have, into a must-have

All stakeholders of financial institutions require digital tools. Clients want to see their information digitally, employees require digital tools to work remotely and partners/suppliers require digital tools to integrate their services. During the first few months of working-from-home, we saw a lot of patchwork in the front end, which enabled companies to continue their communication to clients. At first sight, the implications for the broader financial industry seemed manageable, although there is anecdotal evidence of banks rushing to the electronics store to buy laptops for their personnel in order for them to work remotely. However, besides relatively simple front-end solutions, the real issues started to appear in the connection to the core-systems and the security related to remote working. In some cases, it was not possible to onboard new clients, or to tailor new services.

Remote maintenance of crucial infrastructure also proved to be a hurdle, let alone deploying new technologies that should lead to higher efficiencies and innovative services. As we will discuss in more detail in our latest white paper, the associated cybersecurity risks have also increased substantially. Part one of this paper provides an overview of IT spending trends per subsector. Part two dives into pre-and post COVID investments related to cybersecurity, cloud and APIs and, in part three, we summarise the implications from an investment perspective.

It is our view that the long term strategic rationale for digital is shifting. 2020 Is a year of cost cutting, 2021 is a year of re-aligning and prioritising IT projects and 2021 and beyond will be the years of transformative digitalisation.


important information.

This document has been issued by Lombard Odier Funds (Europe) S.A. a Luxembourg based public limited company (SA), having its registered office at 291, route d’Arlon, 1150 Luxembourg, authorised and regulated by the CSSF as a Management Company within the meaning of EU Directive 2009/65/EC, as amended; and within the meaning of the EU Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD). The purpose of the Management Company is the creation, promotion, administration, management and the marketing of Luxembourg and foreign UCITS, alternative investment funds ("AIFs") and other regulated funds, collective investment vehicles or other investment vehicles, as well as the offering of portfolio management and investment advisory services.
Lombard Odier Investment Managers (“LOIM”) is a trade name.
This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.
Neither this document  nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Funds (Europe) S.A prior consent. ©2020 Lombard Odier IM. All rights reserved.