With the right mix of strategic focus, talent, creativity and investment funding, a traditional bank can morph into a high-flying, digital-first bank. Many incumbents have made that metamorphosis a priority.
Based on our analysis of Celent data, global retail and commercial banks spent approximately US$1 trillion between 2015 and 2018 on efforts to transform their IT, with a large portion of that spend dedicated to enabling technologies such as cloud and AI-powered analytics. Yet, what has come of that investment?
We placed a magnifying glass on the impact of digital change efforts, comparing the economic performances of 161 large traditional banks to determine whether or not digital leadership creates superior economics.
Based on our assessment of the three groups of banks we created—Digital Focused, Digital Active and The Rest—digital maturity is indeed proving to be a factor that will separate future winners from losers. Consider that Digital Focused banks are the only group with a price-to-book ratio above 1x. Their operating expenses grew at half the rate of their revenues over the last six years. Improvements in operating economics are being driven by revenue and cost efficiencies.
While a bank’s next move will depend on its level of digital maturity, we believe that digitally enabled cost reduction is the first necessary step in building a future-ready bank and positioning it to win in the digital economy. Our market observations point to five tips for igniting future revenue growth:
Transformation is doable
Digital maturity is just one factor in achieving stronger bank economics. Regardless of where banks are in the spectrum, there are clear steps they can take to bolster their strategy and operations to compete effectively in today’s open world. We can help you craft and execute your roadmap to get there.