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Sustainable competitive advantage. Banks can capture it by leveraging three building blocks—optimization and simplification, agility and continuous innovation. Doing so could mean pre-tax return on equity levels of up to 18 to 25 percent.
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Building scale was once synonymous with marketplace dominance for North American banks. But in the era of convergent disruption, scale is not enough. From consolidation to digital banking, complex forces are redefining the banking landscape.
It’s easy to see how banks can get marginalized in a swirl of challenges. The good news is that an incremental path forward to a sustainable competitive advantage exists for banks that invest proactively in their own futures.
Yet optimization and simplification only take banks so far. Improving profitable growth will require agility. From embracing digital throughout the business to reinventing customer experiences, agility is seizing opportunities and managing change as a tailwind. While banks have yet to achieve it broadly, agility is the new baseline for 2020.
Finally, banking leaders in 2020 will stand apart through continuous innovation. The highest performers will be disrupters moving forward—acting as first movers in key parts of their businesses. This is not continuous improvement, but rather a willingness to redefine the banking landscape by introducing and responding to disruption.
Most banks understand that they will have to makes some changes to realize a sustainable competitive advantage. A clear path for success exists for those that start now.
November 18, 2013
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