Preparing for the volatile future of banking
Banks have always been committed to improving the efficiency of their operations, and for the most part, their progress has been steady. For a long time, that was sufficient.
But more recently, rising client expectations and regulatory requirements, technology-driven innovations, and the advent of aggressive new competitors (not to mention the operational demands of COVID-19), have exposed that banks’ operational evolution is lagging behind other industries.
Banks must become more agile and resilient to deal with the threats that tomorrow poses—whether they take the form of a resurgence of the pandemic, a financial crisis or a cyber-attack.
What's the upside of being a future-ready bank?
Digitally-focused banks have benefited from market valuations that, on average, were 18% higher than less digitized peers in 2019, and 27% higher in 2020.
Price to book value ratio
In fact, over the last eight years, these banks have managed to reduce their costs more than those that have been slower to embark on their journey to a digital operating model.
What’s more, their revenue on assets has not only been greater but has shrunk less than that of their less-digitized peers. The cost improvement, combined with their revenue advantage, means that they have managed to increase operating income per dollar of asset—jumping from 1.22 in 2011 to 1.47 in 2019.
Operating profits as a % of assets 2011 and 2019.
Shifting to a digital banking operating model
In a recent study, we found that while operating model maturity is advancing among organizations in all industries, banks are progressing slower than most. Our research and experience reveal four levels of operational maturity: stable, efficient, predictive and future-ready. Each level is grounded in and enabled by progressively more sophisticated technology, talent, processes and data insights.
Organizations that achieve a high level of maturity become "future-ready." They are fully focused on digital transformation (i.e. Digital Focused) and gain the agility and resilience needed to thrive amid uncertainty. They also—probably as a result—realize higher market valuations and derive more profit.
Banks have failed to scale in key innovation areas
Consider how we measure future readiness and why it matters. Being future-ready reflects an organization's ability to scale eight characteristics of operating model maturity. Banking comes up short in seven of the characteristics. Our research suggests that technology challenges are impeding banks from achieving operational transformation. This holds true particularly in areas such as artificial intelligence (AI), analytics and automation, each of which would complement banking’s strong data capabilities.
Characteristics of operating model maturity
Knowledge is power
So how can banks push themselves and quickly evolve toward a future-ready state?
The choice to change
Banks don’t have the luxury of maintaining their operational status quo. So much is changing so fast for them.
To keep up with what’s happening on the outside—in markets, with technology and customers—they need to evolve what’s happening on the inside. With intelligent operations, banks can realize the full value of digital banking: lowering costs, increasing resilience and taking the customer experience to the next level. The more they thread intelligence into their operations, the better positioned they will be to outmaneuver uncertainty and meet tomorrow’s performance aspirations.
Now is the time to make your move to intelligent operations. Here’s how:
- Think big and go beyond incremental change
- Enhance the value of data with technologies that deliver better insights faster
- Scale automation, analytics, AI and integrated solutions with leading practices
- Foster a human + machine, specialized workforce
- Put a cloud infrastructure at the heart
- Build complementary third-party and ecosystem relationships
It’s about reaching new levels of operational maturity to choose smarter, act faster and win sooner. It’s about becoming future-ready.