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The digital disruptors: How banking got agile

Leaders in the financial services industry know that digital technologies will be key to restoring profitability after the downturn.


Banking. Just another mundane task, like doing the shopping or going through the mail. Right? 

Not necessarily. Imagine being able to play online games—virtual currency trading, for example—or crowd-fund pet projects, all while checking the status of your bank account. Or consider being able to log on through Facebook Connect and letting Facebook “likes” determine the interest rate on your accounts—the more different customers who “like” the rate, the higher it goes.

Germany’s Fidor Bank offers all this—and plenty of practical financial services besides. Its customers can discuss their requirements and share ideas via chat rooms, for instance, with the bank’s specialist advisors, who are always on hand to offer help. Fidor has no sales staff. It relies on its online community to recommend it to others and also propose product innovations—hence Fidor’s description of its clients’ experience with the institution as “banking with friends.”

There’s a lot more to Fidor than friends having fun, however. The Munich-based, online-only institution has attracted people who lost confidence in mainstream finance during the downturn and now demand a different banking experience—more personalized, more engaging and more responsive to their everyday interests. Fidor is fulfilling those needs by leveraging the new digital technologies—social media, in particular—that define its customers’ lives.

Digital disruptors

Mainstream banks have much to learn from the nimble, digital disruptors offering the trusted, trans-parent services that today’s customers increasingly seek, all built on a lean, asset-light business model. By emulating this model—leveraging social and mobile capabilities, as well as cloud computing, software-as-a-service and the advanced analytics that can help them make sense of Big Data—traditional full-service banks could drive more customer interactions at a lower unit cost. Moreover, by attracting new customer segments, they could develop the additional revenue sources they so desperately need.

Indeed, Accenture research suggests that if these institutions can harness the power of new technologies to make themselves more streamlined and more relevant, they could bridge two-thirds of the profitability gap they’re still struggling to close (see Sidebar 1).

Yet most mainstream banks are fighting just to keep up with the unprecedented pace of technological change—and too many are falling behind. Banks everywhere are grappling with slower growth, tightening regulation and economic volatility, even as many of them face a high and inflexible cost base. In North America, for example, recent Accenture analysis suggests that unless they become more agile, full-service retail banks could lose as much as 35 percent of their market share by 2020—much of it to the digital disruptors (see Sidebar 2).

How to be a winner

Most mainstream banks simply aren’t using technology smartly enough to deliver the transformation they need. At the same time, some of their pioneering peers have recognized that every business is now (or should be) a digital business, and they are starting to position themselves as digital winners.

Their stories are remarkably diverse—a reflection of the different sizes, structures and positioning of the world’s banking institutions. But in our experience, all the banks that are leveraging digital technologies successfully have business models that are more operationally efficient than their peers. Many, moreover, have exploited those models to make significant inroads into new markets and customer segments, and some are developing new services and thus new revenue streams, often in collaboration with third parties.

Most mainstream banks simply aren't using technology smartly enough to deliver the transformation they need.
Collectively, their efforts are starting to shape a new industry business model—digital, connected and integrated with their customers’ everyday lives. Three broad themes characterize this revolution within the industry.


Leading banks have not only invested more astutely than their peers in multichannel integration. They’re also working toward a seamless banking experience for their customers.

How is technology-enabled transformation in banking improving revenue generation, operational efficiency and risk management of existing business models?

Banco Bilbao Vizcaya Argentaria, for example, Spain’s second-largest bank, implemented new core banking technology at BBVA Compass, the Bilbao-based institution’s US operation. BBVA Compass is now among the first US banks to record internal transactions in real time, so its customers’ accounts are immediately up to date, regardless of channel. What’s more, the bank’s lowered processing costs have improved its cost-to-income ratio and its technology total cost of ownership (TCO). Meanwhile, some banks are adopting cloud computing to further enhance the flexibility and cost-effectiveness of their infrastructure, applications and services.

The leaders are combining an industrialized approach to business processes with customer-insight analytics based on real time customer behavior to design, market and deliver seamless, individualized customer experiences. One large European bank, for example, retooled its Internet banking site and boosted its customer conversion rate—the number of customers responding to online offers—by a whopping 290 percent by leveraging web analytics that enable it to personalize each customer’s online experience. Such initiatives can double cross-sell rates, cut customer churn by up to 40 percent and increase marketing ROI by as much as 20 percent. Digital channels clearly cut costs. In fact, J.P. Morgan Chase & Co. estimates that the costs of servicing fully digital bank accounts are 70 percent lower per household than for traditional accounts. But industry leaders also recognize that customers still value branches, so even as banks become increasingly digital, they are leveraging new customer service technologies to make better use of what they already have, developing differentiated branch formats that meet customer needs more effectively—and at lower cost.

Witness, for instance, how ING’s full-service banks in Belgium, the Netherlands and Luxembourg are developing an interactive retail offering that exploits advanced digital channels, including a mobile app, for the majority of daily interactions yet also ensures that specialists are available at the branch when face-to-face advice is needed.

The Stockholm-based bank Nordea, meanwhile, has used a combination of analytics; leaner, sales-focused branch formats; and mobile self-service channels to transform its distribution model. The upshot: significantly lower cost to serve, more income per customer and higher sales. Citibank, similarly, is maximizing the impact of its existing assets by combining tablet and smartphone customer access with the rollout of flagship branches equipped with the bank’s very latest technology innovations, from high-function ATMs, some with video capability, to digital banking kiosks with interfaces so customers can get remote advice interactively in convenient locations.


By leveraging the lower cost-to-serve capabilities enabled by the technology-driven transformation of their operating and distribution models, banks can reach new customers in new markets. And some leading players are providing financial access for the hundreds of millions of people who remain outside the scope of traditional banking services—a tantalizing growth opportunity for any bank striving to restore profitability.

Why is expanding financial services to the world’s unbanked population a major opportunity for banks and a huge benefit for their communities?

In Malaysia, for example, RHB Banking Group, the nation’s fourth-largest financial services provider, has launched a technology-empowered branch network called Easy. This simple, agile and transparent delivery model, designed to attract the less affluent, is 15 percent cheaper to build and operate than traditional RHB branches. Moreover, branches built on the Easy model break even in one-quarter of the time of traditional branches, and generate operating profits equal to the initial investment more than twice as fast.

In many countries, particularly those where infrastructure challenges loom large, banking by mobile phone is making rapid headway. Just consider the success of Safaricom’s M-PESA mobile payment service in Kenya, which now boasts more than 17 million users—more than half the East African country’s adult population.

Right now, telecom providers, with their vast distribution networks, dominate such services. But some innovative banks have opted to partner with them for a piece of the action. For example, ICICI Bank, a leading provider of mobile banking services in India, has forged a network of partnerships with telecoms including Chennai-based Aircel and the United Kingdom’s Vodafone Group to reach rural and unbanked customers.


The skillful mining of Big Data can open up new revenue streams for banks, helping them measure risk better, identify sales or cost-saving opportunities—and build new services. Witness, for instance, Australia and New Zealand Banking Group’s service, ANZ Business Insights, which aggregates payment transaction data to provide small and medium-sized businesses in Australia with actionable insights into customer behavior and sales trends.

Leading banks also recognize that the digital revolution is driving a convergent customer experience across many industries—retail, travel and entertainment among them. By using social networks, for example, they can access customers’ social profiles, deepening their insights into their behavior.

As customers’ digital financial ecosystems expand, banks must develop a comprehensive view of their activities and decisions to help shape the service experience.

Commonwealth Bank of Australia, meanwhile, has developed a range of mobile and online services that satisfy a diversity of its customers’ everyday needs, including a guide to real estate and an app that lets customers make peer and commercial payments via email addresses, mobile phone numbers and Facebook IDs (see Sidebar 3).

If banks don’t make better use of new technologies and analytics to become part of their customers’ digital ecosystems—working with third parties to create value by making their products and services as relevant as possible in multiple contexts—they risk becoming sidelined by alternative providers in important new service areas.

Take Los Angeles-based ZestFinance, a credit analytics firm that is leveraging Big Data to improve credit-scoring models in the payday lending market. Or consider the previously mentioned Fidor Bank, which has partnered with a German peer-to-peer lender to help its customers make loans among themselves.

Peer-to-peer lending is the increasingly popular practice of lending money to unrelated individuals without using a traditional financial intermediary. It matches potential borrowers with potential lenders without risking the bank’s balance sheet, and industry leaders are looking to boost customer engagement by becoming part of it. 


The agile, digital, connected bank—integral to customers’ everyday lives, and the key financial services provider in their digital ecosystems—is emerging as a new model for the industry, capable of revolutionizing it in much the same way that lean and supple, just-in-time supply chains revolutionized manufacturing. The journey toward this model will, of course, differ from bank to bank. But the market’s leaders are not only showing others that such a model can be built—they are also demonstrating the diversity of routes that technology-enabled banking transformation can take.

Sidebar 1: About the Research

To determine what it would take for a bank in today’s market to become a high performer and deliver an ROE over the cost of capital and in the top quartile of peers, Accenture examined the performance of 80 banks, each with more than $100 billion in assets, from 2007–2012. All were based in developed markets. We also included analysts’ estimates to 2015.

We examined the drivers of bank profitability, including the impact of regulatory change, improvements in asset quality, operational improvements and restructuring efforts. We also projected how changing key performance levers—cost reduction, balance sheet efficiency and revenue growth—will affect leading banks’ results, taking into account as well Accenture’s own client experience. The goal was to determine what levels of change are required, what kinds of initiatives could be employed, and which of these would be delivered or enabled through technology change.

For example, in examining the potential for cost reduction, we looked at the impact of multichannel distribution and branch network reorganization. We considered the implementation of self-service technologies, process automation and straight-through processing technology, as well as next-generation core banking technology. And we took into account workforce collaboration tools to enhance staff productivity, as well as such emerging technologies as the provisioning of cloud services, just-in-time managed services and digital marketing.

Already, we see that leading banks have a significant cost advantage over their peers, and we have concluded that these technology-led initiatives could help a bank in the middle of the peer set reduce overall operating costs by up to 16 percent against a total cost reduction of up to 25 percent through combined technology and non-technology initiatives, leading to an overall ROE uptick of 3.2 percent.


Following several years of industry trauma and crisis, what are the medium-term prospects for the North American banking sector?

Accenture’s analysis of more than 500 traditional full-service banks that comprise more than 85 percent of today’s market came to this conclusion: North American banks need to move quickly to match the agility and innovation potential of the sector’s rising new leaders, some of which bear little resemblance to today’s institutions.

Indeed, with more than one-third of their market share at risk,1 the stakes could scarcely be higher. We chose to focus specifically on North America for this analysis so that we could better understand the implications for the broader industry from what’s happening in this important market.

The good news: The same innovative technologies that are powering a new kind of financial services player that Accenture calls “digital disruptors” can also deliver sustainable competitive advantage for traditional banks. What’s more, some of those banks are already starting to harness them.

Our investigation suggests that technology—mobile platforms, social media and robust analytics—is fundamental to the transformation that traditional, full-service US banks must undergo if they are to emerge as winners in 2020. It enables the optimized and simplified operations they require to keep market share. And it builds the agile mindset, backed by robust IT platforms and digitally driven front offices, they must develop to remain competitive tomorrow. Technology is a critical driver of the continuous innovation of digital products and services that will separate the high performers from the pack in 2020 and beyond.

Many traditional banks can succeed by advancing their existing business models and combining them with excellent execution. But we also believe that three new operating models for success will emerge by 2020.

A few dozen highly agile niche digital providers will offer specialized products such as wealth management services or mortgages at scale.

Digital full-service banks with a broad product offering will drive business primarily through digital distribution channels.

Big-box banks will compete largely on price with commoditized products for mass-market consumers.

In every case, the integration of new technologies, and the strategies, products and services they have the potential to engender, will be critical to banking success. 

Sidebar 3: Commonwealth Bank of Australia: Going digital Down Under

Commonwealth Bank of Australia—known as CommBank—is the country’s biggest bank by market value, a financial behemoth with just over $700 billion in assets (as of November 2013) and operations across much of the Asia Pacific region, as well as in the United Kingdom and the United States. Yet it’s also remarkably agile—a market leader in the digitally driven products and services that are revolutionizing global banking.

CommBank was swift to recognize that today’s digitally empowered generation expects to bank at its own convenience, as simply and securely as possible. And that by harnessing innovative technologies it could not only put customers in control, it would also secure a critical role in their everyday lives.

Indeed, since 2007, when the Sydney-based company first started to revamp a digital service platform powered by the streamlined interfaces and real-time analytics that expedite delivery of a personalized customer experience, CommBank has transformed the way Australians bank—achieving significant competitive advantage in the process.

It was the first bank in the country to launch a near-field communications payments solution, for example. The CommBank Kaching app for smartphones and Facebook, which has all the functionality of its online NetBank, enables customers to pay anyone they choose through mobile, email or Facebook contacts. They can also use the CommSec app to buy and sell stocks while on the go. And CommBank’s Property Guide app gives them real-time real estate information, as well as direct access to mortgage advisors.

In addition, through Nomad, its mobile point-of-sale app, CommBank is providing payment solutions directly to retailers and merchants—competing head-to-head with such third-party POS online payments providers as PayPal. Its Pi software platform offers merchants an easy way to split bills into two or more parts and reimburse different providers for performing a shared service, for instance, or activate loyalty programs by leveraging information on customer preferences. And they can use CommBank’s own mobile payment terminal or a device that attaches to iPhones and transforms them into merchant terminals to facilitate transactions.

CommBank’s mobile innovations plainly please the more than 6.5 million people—half of its total retail customer base—who bank online through NetBank. Just three years ago, 88 percent of daily logons were via PC; today 56 percent are by mobile. What’s more, core process transformation has greatly improved the quality and speed of service in CommBank’s 1,100 branches. 


Juan Pedro Moreno is the managing director of Accenture’s Banking industry group as well as for Accenture’s Core Banking Services. He is based in Madrid.

Anton Pichler leads Accenture Research’s Banking Research team. He is based in London.

Andy Starrs is the group technology officer for Accenture Financial Services operating group. He is based in London.