ECB supervisors assess digital innovation's impact on bank business models

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ECB on digital innovation in banks

Highlights

Banks supervised by the ECB are leveraging digital innovation, with over 80% prioritizing process automation to reduce costs and boost efficiency.
New entrants and online platforms fueled by digital innovation are intensifying competition, increasing rate transparency, and threatening the traditional stability of bank deposits.
ECB supervisors stress that banks must invest in technology and governance frameworks to manage both opportunities and risks from rapid digital transformation in financial services.

Digitalisation changes banking competition

As reported by ECB Banking Supervision, citing the ECB Supervisory Arm, banks have traditionally benefited from offering multiple financial services under one roof, giving them access to valuable information that supports forecasting and decision-making.

That advantage is now being tested and, in some cases, reinforced by digital innovation. New technologies, particularly artificial intelligence, are improving how banks process information, upgrade services, manage risks and run operations more efficiently. More than 80% of banks supervised by the ECB identify process automation as an important route to reducing costs.

At the same time, digital innovation is accelerating structural change in financial services as new competitors enter different parts of the banking value chain. This is influencing how banks gather deposits, provide payments and extend lending to customers.

Risks and policy implications for the sector

Advances in computing power, mobile phone use and online banking are also changing how customers react in periods of stress. Social media allows information and rumours to spread almost instantly, while digital banking channels let depositors respond just as quickly.

Online deposit platforms are creating additional distribution channels for financial services, allowing savers to compare rates and place funds with the bank of their choice. That greater transparency and ease of switching can intensify competition and may make deposits less stable than in the past.

The ECB supervisory perspective indicates that digital innovation has become central not only to banks' business models but also to public policy aimed at keeping finance safe and competitive. For lenders to benefit fully, significant investment and robust governance frameworks remain necessary, alongside strategic adjustments that improve services while containing new risks.

In our earlier coverage of banks’ calls for safeguards around AI-powered shopping agents, we explained how “agentic commerce” could expose consumers to scams, fraud and data-privacy breaches as chatbots increasingly handle search and checkout. We also highlighted proposals for clearer disclosure when an AI agent is involved, more transparency in decision-making, and stronger data protections to keep standards aligned with rapid adoption.

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