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Banking: Do you have your license to grow?
5-MINUTE READ
April 16, 2025
Digitization has made banking more sophisticated and efficient—but also impersonal and emotionally devoid. More than 40% of consumers say they struggle to distinguish between financial services brands.
Consequently, customer loyalty is a thing of the past. In the past year, 58% of consumers acquired a financial services product from a new provider.
Banks will benefit greatly by going back to the future and restoring what made them essential: relevance and trust. Emerging technologies—particularly generative AI—can help them understand customers at an individual level and deliver advice and services that feel truly personal. That, in turn, can reestablish their position as trusted financial advisors.
Deploying new technology strategically starts and ends with a vision of the bank of the future. In every era of disruption, the most successful institutions are those that identify their “right to win” in the market and act with conviction—providing a license to grow.
As the gap widens between the biggest banks and their smaller rivals, productive scale has become the ultimate differentiator—enabling greater efficiency, diversified funding and faster adoption of new technologies. Our analysis reveals that, in most countries, the largest bank also enjoys the highest price-to-book-value ratio.
Those that don’t grow risk becoming an acquisition target.
Our research and client work point to five commitments that set the foundation for sustainable growth: fostering cultural curiosity, developing a composable architecture, using data and AI for differentiation, ensuring strong regulatory health and operating with a pivotable balance sheet. Together, they provide banks the agility and innovation capabilities needed to deliver on their strategic vision—and earn their license to grow.
What got you here might hold you back
As banking reinvents itself, legacy banks face two fundamental shifts they must navigate with care: talent and regulation.
Talent shifts
Historically, banks’ ability to be integrated into the community and demonstrate customer intimacy through personal relationships was the lifeblood of success. Today, customer intimacy extends well beyond a successful front office staff into a multi-channel, data-intensive environment driven by a modern technology stack that enables near-real-time data access and processing.
In short, the talent that built your bank to where it is today, won’t reinvent your bank to where customers expect it to be tomorrow. As technology exponentially evolves, banks need people who can adopt and integrate these technologies. Generative AI and no-code/low-code platforms, for instance, are enabling the business to take on tasks that previously sat within the IT department—accelerating time to market.
Wright’s Law tells us that the impact of a new process or technology grows steadily as users become more proficient with it. But to realize its full potential, banks must build a culture that not only anticipates change, but champions it. This is not just about technology adoption; it’s about reimagining workflows for greater efficiency and innovation and aligning them with strategic goals. As work and roles are transformed, waste is taken out and banks have the choice of boosting the bottom line or investing to increase value. This requires strong top-down and middle-out leadership, ownership and incentives to scale the adoption of emerging tech that will unlock the potential of technology and human ingenuity.
Compounding the talent challenge is aging infrastructure and the specialized skills needed to support it. For example, many legacy core banking platforms, built on mainframe systems, still rely on COBOL—developed over six decades ago. As these legacy platforms reach end of life, banks often lack talent on both ends of the spectrum to transform with pace at scale. Generative AI and reverse engineering provide tools to overcome this challenge.
Regulatory shifts
With the recent change in the US administration, several (proposed) regulations are now subject to change. Fundamental to the potential regulatory changes is a more merger-friendly administration. Legacy banks have spent the past 15+ years strengthening capabilities to meet evolving regulatory requirements. These efforts required significant investments in process and technology that introduced an opportunity cost lost in other potential areas of investment (see Figure 1).
Figure 1: The evolution of the Fed’s Supervision and Regulation Letters by topics.
To an increasing degree, regulation has focused on process, technology and other topics rather than the core reasons for bank failures.
As banks consider reinvesting in their capabilities, they must assess both their appetite for change and the potential return on investment. In a world where uncertainty and volatility are writ large, the conviction for significant capital investments in any non-regulatory or non-discretionary capabilities is low. Given their inherently conservative stance, several banks have opted to stay on the sidelines until clearer market signals emerge and macro-economic obstacles recede.
But time won’t wait. Banks that move decisively—those that define their right to win and deliver against the five commitments outlined below—will separate themselves from the pack and earn their license to grow. Growth will be the imperative to thrive in what is appearing to be an increasing consolidation of commercial banks.
Five commitments for growth
When growth is needed to remain relevant, to quote legendary basketball coach John Wooden, “The greatest failure of all is the failure to act when action is needed.” Banks must find their opportunity to win and act at speed to obtain their license for growth or they risk becoming the next acquisition target.
As banks set their vision and strategic course—the “what”—regardless of size, type or business model, five key commitments—the “how”—can significantly improve their odds of achieving the necessary growth to thrive.
01
Build a reinvention-ready culture: Curious and outcome-focused
As the pace of change accelerates and disruptive cycles are omni-present, it’s vital to build an organizational culture that is resilient to rapid shifts in market conditions, technological changes and unexpected events. Having a reinvention mindset with shared values, beliefs and behaviors that reward those who proactively learn and explore, seek out new ways to solve new problems and are outcome oriented is critical.
Take the technological advancements introduced just in the past decade: digital, cloud, blockchain, metaverse, data lake/mesh, machine learning, (generative) AI and agentic architecture. While not all these new technologies have gone beyond the “hype cycle” to add material business value for banks, early adopters benefit from a first-mover advantage. They’re able to fail and learn fast and apply lessons to realize market and financial success. This creates a domino effect for future advancements that—when aligned to business outcomes—adds up to material capability advantages over peers.
Rewarding a culture of “smartest person in the room” or “I’ve been doing that for years” reinforces a calcification of complacency. Worse, it often disincentivizes collaboration. Getting to challenging outcomes isn’t always about consensus, but successful execution often requires collaboration.
In this context, incentivizing the scaled implementation of emerging technology is critical to successful adoption. Generative AI, for instance, can drive growth while evolving the workforce. By as early as May 2024, Klarna had nearly 90% of its employees using generative AI on a daily basis. Its leaders set the example, with CEO Sebastian Siemiatkowski saying “We push everyone to test, test, test and explore."
02
Match your composable architecture to your mission
As the democratization of technology accelerated and new channels became table stakes, banks became increasingly dependent on their technology providers to “keep up with the Joneses.” Over the past several years, CIOs of banks of all sizes grappled with fundamental questions like data center vs. cloud, build vs. buy vs. rent, and customize vs. configure. These challenges are compounded as many banks run on a patchwork of technology that has grown historically or been brought together through mergers or acquisitions.
Very few banks have defined and deployed an enterprise architecture North Star aligned to their business strategy and priorities. This results in a lack of targeted architecture modernization journeys. Most banks have undertaken modernization efforts: digitally decoupling functions, abstracting out data for ease of use, replacing point-to-point integrations with restful APIs or event-driven patterns. And yet, the ability for CIOs and technology organizations within banks to quickly respond to rapidly changing conditions is limited, let alone be nimble enough to proactively prepare. CIOs of the future must become the market makers of their bank’s growth.
A license to grow depends on aligning tech investments with strategic business priorities. Yet, many banks lack C-suite commitment to multi-year investment plans. This leads to tactical solutions rather than strategic transformation—and often drives up run costs as percentage of total IT spend.
Innovation demands flexibility to move at speed. Banks that embrace a modern, composable architecture increase their ability to bring the right products and capabilities to customers, at the right time, in the right channel.
Composable architectures unlock several value streams: increased personalization for servicing and capabilities, cost efficiencies through modular development and optimized operations, flexible deployment, smart scalability, vendor independence and interoperability, increased resiliency, and stronger compliance and security. These value streams help banks ensure their architecture actively support their strategic goals.
03
Wield data and AI to drive differentiation
In today’s landscape, banks must treat data and AI as core enablers of growth. Banks that continue to play defense digitally and rely on legacy channel and distribution models will increasingly be put at a disadvantage.
Banks have access to immense volumes of data, much of which is just now being organized in a way that it can be leveraged to drive meaningful experiences. Moving applications (including databases) to the cloud enables access to and useability of data across the organization.
The strategic application of data has far-reaching implications. Nearly three out of four customers (72%) say an appealing and personalized range of products and services is a key factor when choosing a bank. The ability to make data-driven decisions—based on customer transactions, propensities and desires—will be critical to be there when it matters most to your customers. That’s what enabled BBVA to realize a staggering 117% growth in new customers in five years and net profit of more than €10 billion in 2024.
Today, banks are abstracting transactional data from their core and/or integrating with marketing technology platforms, such that they are able to serve up real-time offers that are personalized based on past behaviors. It helps drive seamless experiences across channels, deepening relationships and ultimately increasing loyalty and profitability.
However, building the data foundation can be a multi-million-dollar investment. Linking business insights and value with building the tech and data foundation is essential to delivering business value while achieving a positive ROI within a short time frame.
04
Maintain strong regulatory health
In an industry as highly regulated as banking, being compliant may seem self-evident. But it’s easier said than done. Given the ever-evolving landscape of regulatory requirements and expectations—alongside increased scrutiny—regulatory health can be a differentiator in the quest for growth.
Compounding this environment is the expected acceleration of mergers and acquisitions. Regulators expect large financial institutions (LFIs) to be rated as “Broadly Meets Expectations” or “Conditionally Meets Expectations” across capital, liquidity, governance and controls to be considered “Well Managed”. Banks that are not “Well Managed” quickly move from predator to prey in the consolidation of commercial banks.
Rising risk interconnectedness increases the need for upskilling and effective technology. Successful banks will be those that have fully incorporated and embedded these compliance aspects into the very essence of how they operate, and not as a separate, box-checking activity. And by leveraging technology solutions that use AI and machine learning, banks can streamline their compliance—improving data accuracy and automating routine tasks.
While there are administrative changes and shifting postures relative to regulations, the fundamental regulatory framework under which banks operate firmly stands. Banks that strike the right balance between safety and soundness and deploying capital for growth will prove more durable throughout economic cycles.
05
Embrace a pivotable balance sheet
Jamie Dimon is known for championing JPMorganChase’s “fortress balance sheet,” designed to withstand economic shocks, mitigate risks and seize opportunities.
In today’s environment of disruption and uncertainty, this concept could evolve into a “pivotable balance sheet.” While a fortress suggests strength but rigidity, a pivotable balance sheet maintains stability while allowing for strategic adjustments. It upholds the same principles of resilience and risk management but with the added flexibility to adapt responsibly to macroeconomic conditions.
As the current economic cycle is shifting from a prolonged elevated rate environment to a plateau and, more recently, soft decline in rates, banks are pivoting from being liability sensitive to asset sensitive relative to what they hold on their balance sheets. In the second and third quarters of 2024, for example, we saw Investment Securities as a percentage of total deposit increase more rapidly in a mitigation for expected falling rates to mitigate the impact on net interest income.
Banks that don’t run what-if analyses and dynamically manage their product pricing and balance sheet exposure run the risk of increased unrealized losses—as seen in the mid-size bank failures in 2023. Having a prolonged stable rate environment akin to the 2008–2022 period now seems less likely, and banks would be better served to proactively manage the increasingly rapid macroeconomic shifts.
In a grow-or-lose-relevance environment, the most successful banks will be those that identify their right to win in the market and can successfully execute against this strategy. By progressing on the five commitments we’ve outlined, within the context of the business strategy, banks can strengthen their readiness and earn their license to grow—and thrive—in an increasingly dynamic landscape.
1 Reverse engineering is the process of analyzing and deconstructing legacy banking systems—particularly old, often undocumented mainframe code and architectures—to understand how they work, so they can be modernized or rebuilt using newer technologies.