Digital technology is transforming the financial-services industry, and banks face the challenge of fully digitizing their businesses. To do so, they must decide where to invest in digital and how to justify these investments amid rising IT budget pressures.

By correlating the cost/income ratio with the level of digital enablement, we found that banks’ profitability is related only to specific areas of IT digitization. While correlation does not neces­sarily imply causation, it is interesting to see that more profitable banks have been investing in a few common areas. The areas with the highest correlation with profit­ability were product back-office automation, digitization of document management and automation of credit decisions, and big data analytics applied to sales campaigns. The profit margins of banks with high levels of digital enablement in these areas were, on average, twice as high as the profit margins of other European banks.

Consequently, while keeping in mind that each bank’s situation and investment cycle is different, we can formulate hypotheses about where IT digitization investments will provide the most bang for the buck.