What are some of the changes going on in the banking industry right now?
Like many other industries, large incumbent banks are being affected by digital disruption—and they know they need to act fast to manage it. But each bank is unique; it needs to handle digital in a way that suits its own organization, customers and workforce.
What does this digital disruption look like?
New entrants or startups are changing customer expectations and impacting specialized revenue streams. And large digital leaders are extending their banking services into non-banking digital ecosystems where they are already active or dominant. Banking leaders who want to succeed in a digital economy need to make fundamental changes to how they operate. Instead of a traditional “bell curve” response to a typical product or service life cycle, they need to introduce services quickly, testing and learning from the market’s response to eliminate the losers early and accelerate the winners. This is the route to transformation for today’s banks.
Why do the banks need to transform?
Every business knows it cannot stand still, especially in this digital era where digital change is reshaping industry boundaries. Our research shows that mature or emerging market banks can potentially drive up return on equity by more than 5 percent, so there is a real cost benefit to transforming the business of banking. To get these kinds of returns and fast track success, I believe banks need to execute their digital journey at the right speed, with the right governance model and mind-set.
What do you mean by “executing at the right speed”?
Banks must operate at two speeds so that they can react quickly to what customers want and address the fast changes needed in the core business of banking. Take the first speed—banks looking for disruptive growth options outside of their core business. They need to tackle the fact that 32 percent of bank revenues could be at risk from the business models of new entrants, and they should become digital attackers themselves (like targeting specific market segments such as young adults). They could also respond by launching a digital wallet for in-app commerce or use big data to achieve data monetization. It’s about moving at the same pace as entrepreneurs, having a “test and learn” mentality and using different vehicles like venture funds to develop the necessary capabilities.
The second speed is around transforming their core business with three fundamental digital strategies—customer, enterprise and operational strategies. These strategies can help banks provide an omnichannel experience, with new products or services that better suit customer needs and expectations. Across the enterprise they’ll need a digital culture using collaboration tools to support more intelligent working. Finally, IT lies at the heart of banking, so having an open architecture and flexible technology platform is essential, not just to be more efficient, but to open up the possibility for new business models. Of course, making such strategies happen is not easy as banks are very complex institutions, but with good governance we know banks can realize returns.
What sort of governance do you believe is needed to make this transformation happen?
Unfortunately, the reality is that all too often digital initiatives don’t scale. I believe there are three critical roles that can balance new growth with transformation of the core banking business.
First, the technology entrepreneur—this is someone who acts as the architect of the bank’s future capabilities, from introducing new concepts, such as the intelligent enterprise or platform-based thinking, to making the enterprise more open, scalable and flexible.
Second, the banking entrepreneur—typically a CEO of a bank who’s going to reorient the business. This is a person who understands the relationship between value and risk, and is familiar with the bank's business model of capital, revenue flows, costs, the regulatory boundaries, and how bank-centric business models operate.
Third, the role for the digital entrepreneur—a person who’s going to delight your customer. This role puts customers at the center of the bank’s thinking; someone who develops a portfolio of business options while digitizing revenue and processes.
With these three roles all working together in a really collaborative way banks can achieve long-term transformation and scale up innovation across the business.
So, three roles, two speeds—what’s the one thing missing from this picture of a banking future?
Being digital inside and outside the organization is probably the single most important thing that banks can do to execute their strategies. By that I mean being digital internally by, for instance, always operating in real time, or using analytics and rewiring governance. Being digital on the outside is all around improving customer engagement and the customer experience. One last important feature of being digital is attracting and retaining digital talent. In Accenture research, 61 percent of digital transformers see shortages of digital skills as a top challenge in digital transformation and are concerned about how they can attract and retain top digital talent. As we hear in the press, digital means new roles are emerging, including robots augmenting the workforce. It will all mean changes in leadership thinking.
So do you believe digital lies at the heart of the future of banking?
I believe banking is being reinvented. But if banks want to keep pace with new, everyday banking that simplifies customers’ lives and offers groundbreaking services, current execution models must change. Two speeds, three roles and a being digital mind-set can help banks satisfy customers and stakeholders—and reinvent banking as we know it.
To learn more about key factors to a successful digital strategy in banking, read our recent report, "Digital strategy execution drives a new era of banking.”