Taking a page from some of the larger digital businesses, banks can offer a curated and vetted mix of internal and third-party offerings. As a start-up, Kabbage had a distinctive new capability but lacked capital and customer relationships. That’s because many small and nontraditional institutions lack core banking products, infrastructure, capital assets, or even banking licenses, and don’t have the reach or resources to acquire them. Peter Weill and Stephanie L. Woerner, “Thriving in an Increasingly Digital Ecosystem,” Sloan Management Review, Summer 2015, 27-34. But do you have the right analytics tools to hear it? It tells you how to win relationships. Our flagship business publication has been defining and informing the senior-management agenda since 1964. Advanced analytics allow financial institutions to better anticipate loan defaults or to find consumers who, due to overzealous discounting, are underpaying and then reprice these products and services. These figures include the following: We're seeking a Digital Strategy Transformation Lead, which will … Most big banks have the tools and advantages to push the boundaries of their existing business models. People create and sustain change. Please click "Accept" to help us improve its usefulness with additional cookies. But large institutions can create significant value by leveraging back-end assets to create and provide products or services to smaller banks and other businesses. 2 1 3 Digital Business Transform and reinvent new business models. Communicate the transformation is essential for the bank to survive. Use behavioral analytics to identify consumers who are a flight risk and then create individual action plans to keep these consumers loyal. The vast majority point their finger at their current technology infrastructure. Read how you can send more relevant and timely marketing communications by synchronizing core systems, consumer and mortgage loan origination systems, and third-party data. Siam Commercial Bank used to rely only on the personal networks of its bankers to prospect for customers. Banco Bilbao Vizcaya Argentaria (BBVA), for example, began its digital transformation by developing a state-of-the-art technology platform driven by the operations and IT function, which served as a stepping stone to transform the rest of the business. Large banks—like many incumbents—have been inundated with new technologies and business opportunities, leaving them confused about where to focus and dissipating their resources. Banks should consider this option if.... they possess a significant back-end capability that others don’t have and the ability to extend it into other environments securely. Most banks have a rich set of exclusive information on their customers (key demographic details, where they live, their lifestyle preferences). Sometimes digital transformation will lead a bank to shuffle the businesses in its portfolio … The bank or credit union creates a new business unit and names a head of digital. They are rewarded with significant revenue growth and 14 extra points of total shareholder return. In the evolving digital era, many new opportunities to offer services like this are emerging. To build privileged relationships with customers, some financial supermarkets rely on recommendation engines, which use transaction, merchant, and customer data generated from the platform to provide personalized suggestions and offers. In addition to generating new revenues, ecosystems of this sort can protect banks from the efforts of fintech start-ups and digital giants to invade banking’s traditional turf. 2. Mortgages (tied to home buying), auto finance (tied to car buying), and credit cards (tied to taxi/ride-sharing trips and restaurant visits) are examples of such products. That’s not easy to accomplish but can be well worth the effort. collaboration with select social media and trusted analytics partners Now, the bank also analyzes payment networks to find non-customers who are affiliated with their current customers. A headlong dash toward developing “all” these capabilities isn’t the answer. Twitter But not all banks are prepared for a full digital transformation. Learn From Top Brands in Other Industries, How to Survive and Thrive in 2021 and Beyond, How to Turn Your Data Into Your Greatest Competitive Advantage, How Knowledge Engagement Will Shape the Future of Finserv, Connecting, Informing and Engaging with Activity-Based Marketing. Which unconventional growth opportunities represent a good fit with current resources and competitive position? Cons: It’s tough to change a business model that remains siloed within an existing business unit. The future of digital banking strategy As banks move to digitize their core banking platform, they need to consider how quickly they want to bring about change and understand the implications of their modernization journey. Discover how to exceed expectations, increase card use, boost brand awareness and stay top-of-wallet amid rapidly evolving expectations. Extending beyond the core can allow banks to form a network of value across industries and create their own “ecosystems” that provide the services customers want at lower cost and with greater convenience. Decision 6: Buy or sell businesses in the portfolio? Ideabank and ING, for example, have extended into banking adjacencies (see middle ring in exhibit) by providing services like accounts-receivable management, factoring, accounting, and cash-flow analysis to small and medium enterprise (SME) customers. 3. They don’t have the talent with the necessary digital and analytics skills. Post Bank, for example, has become the largest provider of mobile phone services in Italy. Boston Consulting Group identifies three digital operating models: 1. Since the best talent typically wants to work with innovative digital platforms, hiring will be easier. To find the most impactful consumer journeys, Boston Consulting Group says you need to do your homework — e.g., looking at customer transaction histories, call center logs and online data to identify those points in the journey that are causing the most pain. DBS Transformation: The World’s Best Digital Bank Driving Digital Transformation at DBS The Digital Reinvention of an Asian Bank Rewiring the Enterprise for Digital Innovation: The Case of DBS Bank DBS Bank Fosters a Customer-Led Innovation Culture DBS Bank: Transformation though Strategy Implementation Case studies on DBS’ Digital Transformation 74 Most appropriate for: Banks and credit unions in the early stages of digital transformation. And Bank Bazaar in India, a pure-play financial supermarket with no proprietary offerings of its own, offers a full set of services from more than 50 institutions to more than 23 million customers. And legacy systems will remain an issue. With a knowledge engagement strategy, your business can turn that knowledge into a renewable resource. For example, a customer with a checking account would be encouraged to consider a personal line of credit, a home-improvement loan, or a bank credit card (see inner circle of exhibit, labeled Core). For example, the bank used to manually trace beneficial owners through company holding structures and then manually compare owners against six different sanctions databases. But digital technology and big data/analytics are still poised to shake up the financial-services industry. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. A large Australian bank used advanced location models to analyze which digital, human and hybrid services were the most in demand what branches. Our report explores five options for banks to consider as they implement their core banking transformations. And the impact on the bottom line is much smaller than they thought it would be. Another idea is to use granular cluster analysis to compare an individual consumer product mix to the average for that consumer type and use that information to cross-sell and deepen relationships. (Translation: “It’s our core DP’s fault!”). Siam Commercial Bank has identified five customer journeys — prospecting, advice and sales, onboarding, transactions, and administration — and is digitizing all of them, says Vish Jain, First EVP and Head of New Business and Operating Models. They opened, closed, and renovated branches and trimmed its branch footprint by 30%. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Unleash their potential. In our experience, the most effective route is to develop a clear view of which capabilities can deliver the most value quickly and power a broader digital transformation. Engaging across buying journeys can allow banks in such a position to gain access to a larger pool of potential revenue and enrich the overall relationship with their customers. Having spent several years in the European Parliament, it is always a pleasure to be back in Brussels. Con: The existing bank remains and it’s difficult to encourage existing bank customers to move to the new bank. Please email us at: McKinsey_Website_Accessibility@mckinsey.com. The classic example of this kind of service is banks providing credit-card processing to retailers. This aggregation model provides customers with easy, one-stop access to financial products and the ability to address multiple financial needs through a single, integrated channel. In other words, you don’t go digital just because you can. Digital Native. In this paper, we present an 8-week sprint agile digital transformation approach that any bank can follow to build a pragmatic and market responding digital strategy by focusing on what makes a bank unique and unparalleled. We’ve found that a balanced portfolio of short-term, high-impact—predominately channel-based — projects, along with long-term restructuring, is the way to go.”. ING Direct was the original digital attacker, starting as an exclusively online bank in 1996 and attracting more than 20 million customers in 9 countries over a little more than a decade, before spinning off several of its national subsidiaries in the late 2010s.3 Banking Strategy, Digital and Transformation Latest thinking in respect to Banking Strategy, Digital and Transformation. Find out how the COVID-19 pandemic has impacted bank marketing strategies in the current term and as banking leaders look to the future. This article was originally published on March 27, 2018. “The starting point for each financial institution will depend on its business strategy, market position and capabilities,” Boston Consulting Group says. And an astonishing one-in-five banking execs consider their bank or credit union “market leading” when it comes to digital. Focus on a multi-channel approach with ongoing measurement of results. Digital as Business as Usual Plus. Antony Cahill, COO at NAB, describes it as “fundamentally reimagining and redefining all customer experiences.”. But according to research from the Boston Consulting Group, less than half (43%) confess they don’t even have a digital strategy. The focus is on acquiring new customers. Most banks, however, tend to focus only on discrete, bank-centered moments in the customer’s overall journey, such as offering a mortgage, when the customer’s larger goal is buying the house. Digital Development At-A-Glance The World Bank’s work program in the ICT sector focuses on expanding access to fast, affordable internet, and developing reliable online platforms that promote improved service delivery, good governance, and social accountability. Pros: New economies and new capabilities can have a rapid impact. In the six months after the app’s release, customers searched more than a million properties, and the bank estimated the project’s return on investment at more than 100 percent.2 YouTube. tab. Most appropriate for: Banks and credit unions that have already progressed pretty far in digital transformation. Several of Canada’s biggest banks have partnered with Toronto-based SecureKey in a system that allows individuals to use their bank credentials to access online services from the federal government. In addition to finding adults who are still paying introductory student fees — 30 years later — data mining can analyze and find consumers who may be paying for services they don’t care about and getting other services they would be willing to pay for free. Hiring strategy: The sky’s the limit. Drive profitability with card modernization. To build a digital transformation strategy, Boston Consulting Group recommends that banks and credit unions focus on four priorities — or pillars: Reinvent the consumer journey; Leverage the power of data; Redefine the operating model; Build a digital driven organization RoE figures based on analysis by McKinsey’s Financial Services Practice. Most transformations fail. Arkadi Kuhlmann and Bruce Philp, The Orange Code: How ING Direct succeeded by being a rebel with a cause, Wiley, 2008. The end goal is to completely digitize the consumer journey from start to finish, says BCG (think: rapid digital onboarding and automated digital lending decisions). Hiring strategy: Retrain existing talent and add external talent where needed. It’s too overwhelming — and costly — to try to map and change multiple consumer journeys. Instead, prioritize APIs based on business value. Never miss an insight. Another is to create new offerings, such as reports or benchmark analytics, based on bank data. And for many consumers, that’s the purchase journey they expect from everyone they do business with. It’s also clear that the digital and physical interaction preferences will change and vary country per country (e.g. Learn how a refreshed brand and platform allowed Citadel Credit Union to reach deeper into existing markets and broader into new ones, increasing brand equity and awareness. hereLearn more about cookies, Opens in new Lay the groundwork to build a strong advisor lineup and grow your advisor team. Meanwhile, BBVA U.S. CEO Javier Rodriguez Soler outlined how their focus was to “remain focused on executing our digital transformation strategy aimed at building our capabilities, expanding our product offerings, using technology to improve efficiency and … Banks and credit unions that digitize can achieve a 20% increase in revenues and a 30% decline in expenses. The bank also uses data mining to create profiles of their best customers and uses reverse-lookup to find prospects with similar profiles. The app also provides a mortgage calculator and other financial tools, plus the option to connect with local realtors. What’s more, data monetization seems to correlate with industry-leading performance. It will help you come up with creative solutions to level up your business in this digital … They will have plenty of time to accommodate to the reorganization. Digital upends old models. Funding usually comes from the P&L change budget. cookies, McKinsey_Website_Accessibility@mckinsey.com. Consumers are apt to think banks and credit unions have had ample time to figure out what Amazon is doing right and emulate it — e.g., “Why doesn’t my bank work like Amazon?? Banks and credit unions can use data mining for better prospect and client targeting. Large financial institutions can address this need by developing a portfolio of white-label products to sell to or through third parties, providing infrastructure as a service, and even “renting” their balance sheet to small and nonfinancial players. Your data doesn’t just ell a story. maturity, connected processes, legacy systems), branch per branch (e.g. 3. The management team stays in place and the focus is on bite-sized advances. Here’s a short checklist for recruiting, onboarding and retaining a team of advisors. Stay current on your favorite topics Please try again later. Four out of five financial institutions believe that digital will fundamentally change banking and completely transform the industry’s competitive landscape. APIs allow legacy systems to communicate with digital applications but the mistake that some financial institutions make is that they try to integrate many systems at once. A supermarket approach can allow banks without a strong position in such areas to grow in these segments as a complement to their current offerings. That’s the approach that HSBC took. Watch this 60-second video to learn quickly how data analytics delivers greater clarity and actionable insights that empower you to make better informed decisions. It is a vital change in how banks and other financial institutions learn about, interact with and satisfy customers. The new institution can use off-the-shelf products to launch fast. Even transforming just a few journeys can make a big difference. Visit our Digital Strategy page Commonwealth Bank in Australia (CBA), for example, wanted to play a bigger role in the home buyer’s journey. The Financial Brand - Ideas and Insights for Financial Marketers. If you would like information about this content we will be happy to work with you. Harnessing our collective wisdom to make banking better. Wim Mijs and Roberto Viola have already given us some very interesting thoughts on cloud services. Greater Bank is evolving - embracing a future shaped by empowering our customers. CBA created an augmented-reality app that allows users to point their smartphone’s camera at a property and instantly see its current price and sales history. There’s no legacy systems to get in the way. Banks and credit unions that combine human interaction with digital and self-service functionality in what Boston Consulting Group calls a bionic network can expect an up to a 15% increase in revenue, up to a 35% reduction in branch costs and up to 15% increases in customer satisfaction. That said, most such initiatives are small and typically need to be scaled up to take full advantage of opportunities large banks face. What governance structures should be established, and what organizational approaches employed? Heitor Martins is a senior partner based in our São Paulo office and leads Digital McKinsey in Latin America. Banks can grow by engaging with consumers at other stages of their decision journey. Banks and credit unions can use data mining to improve pricing. Banks have long relied on making customers aware of relevant products as a path to growth. Select topics and stay current with our latest insights. One banker told Boston Consulting Group that 80% of the effort on their digital initiatives is spent on integration with legacy systems. What’s holding them back? Some banks have even gone farther and moved into nonbanking adjacencies (see outer ring in exhibit). Data analytics enable banks and credit unions to better understand consumers, identify business opportunities and reduce costs, says Boston Consulting Group. Now, how do you keep momentum? Discover the features and benefits. RoE figures based on analysis by McKinsey’s Financial Services Practice. Deutsche Bank has agreed a multi-year strategic partnership with Google Cloud to redefine the bank's financial services. The consumer journey doesn’t get much less frictionless than Amazon’s one-click ordering — see it, like it, click it, buy it. Intended for investors, the quarterly report quotes numerous statistics explaining “why digital matters” to the organization. Globally, financial-services revenues have grown 4 percent annually over the past ten years (thanks largely to growth in emerging markets), and fintech start-ups and large tech companies have so far captured only tiny slivers of market share. Subscribed to {PRACTICE_NAME} email alerts. Peter Weill and Stephanie L. Woerner, “Thriving in an Increasingly Digital Ecosystem,”. Digital transformation concerns all aspects of the organization—business model, funding, culture, human capital strategy, operating model, technology, talent and more—to create an integrated digital enterprise capable of creating innovative ways to more effectively run, change and grow their business. There is no one-size-fits-all answer. That’s a triple win. This kind of helpful, concierge-style service can reduce the risk of disintermediation. And legacy systems remain an issue. …and that number is growing. Digital as New Line of Business. All content © 2020 by The Financial Brand and may not be reproduced by any means without permission. Those that do reflect a robust digital strategy that follows the five simple rules we’ve just described. Building a financial supermarket allows a bank to focus on the high-return side of the industry: average annual return on equity (RoE) for providing credit from bank balance sheets is only 6 percent, while RoE for product origination/sales is 22 percent.1 See also Commonwealth Bank, Investorville Case Study, 2013. Download our Beginner's Guide to get answers to your big questions about why, when, and how. Cons: A new line of business means a more complex organization. Challenges become roadblocks. Download this insightful perspective on the changes in the financial services industry and what relevant actions are required to rise to these challenging times. This field is for validation purposes and should be left unchanged. 1. Kabbage’s easy-to-use interface and novel risk-management algorithms allow it to deliver decisions on loan applications in a matter of minutes. Strategy pros and cons. We use cookies essential for this site to function well. Not all digital transformations succeed. You can also generate more revenue from customers who manage their money with a smartphone, tablet, or PC. Not only does a digitized journey make consumers happy, it also frees up staff for more valuable tasks like cross-selling and relationship building while simultaneously saving the financial institution money by streamlining processes. Learn from digitizing the first journey or two, then tackle the next. They’ve been overly cautious, playing defense, with me-too digital initiatives primarily designed to counter moves by actual or potential disruptors. Facebook Innovate from within existing businesses, set up separate units, or partner with/acquire from outside? The first is for a bank to use its internal data more effectively for its own operations by adding new analytics capabilities. 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