Reinventing retail banking


April 2017

The question about the impact of digital on industries no longer needs debate. Digital is without doubt one of the few truly top-line growth tools that executives have left in their arsenal. The exponential rise of the likes of Airbnb, Spotify, Netflix, Uber and Alibaba among others demonstrates how, when executed correctly, digital redefines business models and entire industries. When digital bites, it bites fast. 

This is true also for retail banking which has seen unprecedented developments. The rise of the Fintech, driven by changing consumer demand, has totally reshaped a centuries old product-led industry in less than five years. The opportunities that 4500+ FinTech companies present today is reinforced by the total venture capital investment in Financial Services that has driven their growth, rising from USD 4.1Bn in 2012 to an unprecedented ~27 billion by 2016.  New technologies combined with greater adoption of smartphones, growth of banking by the millennials and the loss of trust in big banks post the global financial crisis have all contributed to increased demand for alternative solutions and alternative ways to bank. Consumers have become less loyal and the market’s gone more competitive!

For Retail Banks, days of contemplation are over. All banks are driving digital. However, digital should focus on sustainable value creation in a broader sense. Banks that can execute and embed Digital at the core of the corporate strategy, whilst keeping the customer as the focal point for the whole bank, can achieve: a potential revenue uplift of around 45%; a reduction in costs of more than 30%; and a ROE in mature markets of approximately 15%. Surely there is more to it than ROE such as brand equity; customer advocacy; competitive differentiation are few significant benefits that comes with it. [A.T. Kearney research and analysis, 2016]. Today, every major bank is working with external firms and FinTechs (with varying levels of success) to expand their capabilities through collaboration. But truth be told, little has the needle moved in terms of commercial returns on digital or new behaviours around customers – even with serious investments in Digital since 2011, ROEs for major retail banks have stagnated at 6%. Why are most banks struggling to leverage commercial value from Digital? And, how should they undertake Digital Transformation that will ensure sustainable value creation? The bigger question is – can legacy retail banking institutions really reincarnate themselves to become truly digital?

This exciting joint research between Efma and A.T. Kearney surveyed more than 600 banks and financial services executives across Europe, Africa and Middle East Region and in parallel conducted more than 60+ interviews with senior executives to seek their opinion on how banks can move to become more digital.

Keywords : Operational excellence/Cost efficiency