For retail banks, the days of contemplation are over. All banks are driving digital; however, not all digital efforts are creating sustainable value. Findings from Efma and ATKearney show that those banks that can embed digital into the core of their corporate strategies while keeping customers as the focal point for the whole bank could achieve a double-digit revenue uplift, 20-30% cost reduction, and a double-digit return on equity (ROE) in mature markets. But success is a way off. According to the report, the retail financial services industry is lagging in five areas:
1. Transformative use of digital
The majority of respondents (about 80%) say that more than 75% of their digital investments are in one-off solutions, apps, or projects rather than an all-encompassing transformation that could take the bank to the next level. So far, a fragmented or opportunistic strategy has driven most digital investments.
2. Commercial viability linked to customers
More than 73% of respondents say customer centricity has been an important factor when choosing digital projects. However, less than 10% say they have seen significant commercial value or customer stickiness from digital initiatives. Commercial viability linked to customers has not been the most important factor in choosing projects.
3. Ecosystem collaboration
More than 77% say most digital investments are focused on driving functional efficiencies, such as robotics in back-office functions, and in cross-functional value creation, such as roboadvisory solutions to drive quality and efficiency, while less attention has been given to risky investments through ecosystem-driven digital solutions that tie fintechs with internal innovation hubs and other financial solution providers. Although functional efficiencies can reduce costs, they do not improve product-siloed operations. Increased value creation can come only when banks think of banking differently – prioritising a frictionless customer experience by integrating and exploiting internal innovation, market innovation and fintechs.
4. A focus on cultural transformation
More than 68% believe the success of a digital transformation requires a cultural shift so that organizations think, behave, and challenge themselves differently. However, they also believe the banking industry is too risk-averse to drive the change needed to survive, and in some contexts, they fear the painful transformation they must go through.
5. Moving away from a start-up copy-cat approach
More than 78% say banks have much to learn from start-ups in embracing digital. Pace, agility, a spirit of experimentation, and an appetite for risk are some elements of the new digital world. However, banks acknowledge that digital transformation in established companies brings very different and unique challenges and complexities.
The study goes on to explain why banks have not managed to achieve true commercial value, even after investing billions in digital. For the next leap, banks will need new digital paradigms, such as customer centricity, a frictionless experience, speed, agility, and market collaboration – not one at a time but all at once. But first, banks will need to think and act differently with a serious commitment to change from the top and a dogged determination to see it through. What’s needed is an inside-out transformation to shift from a legacy model to the new world.
To discover how banks can reinvent themselves and embrace digital to create commercial value, download your copy of the report here.