Luxembourg’s private banks are falling short in their digitalisation journey, despite recognising its strategic importance, according to a new survey conducted by KPMG in collaboration with the Association des Banques et Banquiers Luxembourg (ABBL).
The study, released today, highlights the sector’s struggles with governance, investment, and execution, offering a roadmap for addressing these critical gaps.
While 66 percent of respondents see digitalisation as a top priority, a clear gap exists between aspiration and implementation. Few private banks have appointed a head of digital transformation, and many lack a coherent strategy. Instead, digitalisation efforts are piecemeal, constrained by limited resources and overshadowed by competing priorities such as regulatory compliance projects, including Dora and the Instant Payments Directive.
Ananda Kautz, ABBL’s head of innovation, payments, and sustainability, stressed the importance of aligning regulatory initiatives with digital objectives. “Several ongoing regulatory projects are intrinsically linked to digitalisation, yet they require significant resources that could otherwise drive innovation,” she said in a statement.
Struggles with skills and culture
Only 48 percent of private banks surveyed report having the in-house skills necessary to support digital transformation. This skills gap hampers progress in implementing advanced technologies such as hyperautomation, AI, and data analytics. Despite some banks adopting agile methodologies and cloud computing, the lack of specialised talent remains a bottleneck.
Xavier Roch Lhotellier, partner at KPMG Luxembourg, emphasised the need for a cultural shift: “Digital transformation is an ongoing journey requiring leadership, continuous learning, and adaptability. Without these, banks risk falling behind in an increasingly competitive landscape.”
Customer expectations outpace progress
As private banks cater to a diverse clientele, they face increasing pressure to deliver both cutting-edge digital services and personalised advisory support. While 87 percent of banks now offer mobile apps and 91 percent provide online banking, these solutions often lack the innovation necessary to meet the expectations of tech-savvy Millennials and Gen Z clients.
“The first winners of this transformation are undoubtedly the customers,” said Kautz. “Digital tools should enable banks to deliver a hybrid model that combines real-time financial services with face-to-face advisory. Achieving this balance is essential to maintaining relevance.”
FinTech partnerships: Promise and pitfalls
Nearly three-quarters of private banks have signed contracts with FinTech providers in the past three years to accelerate digitalisation. These collaborations aim to improve efficiency and address compliance challenges. However, concerns over data confidentiality, system integration, and security risks continue to impede broader adoption.
Despite these obstacles, mutualisation efforts—where banks share resources or infrastructure—are emerging as a promising strategy to pool expertise and manage costs.
Recommendations
To address these weaknesses, KPMG and ABBL recommend that private banks:
- Strengthen leadership and governance: Appoint dedicated digital transformation leaders to drive cohesive strategies.
- Invest in talent and tools: Prioritise upskilling and recruiting specialists to close the talent gap.
- Embrace FinTech collaboration cautiously: Develop robust frameworks to manage integration and security challenges.
- Focus on client-centric innovation: Leverage technologies like AI and CRM systems to personalise services and enhance user experience.
“Digital transformation is not just about technology adoption,” Roch Lhotellier concluded. “It’s about rethinking how banks deliver value to clients while staying ahead in a rapidly evolving environment.”