How Retail Banking Can Survive Fintech

According to a widely cited Accenture report, over three years traditional and commercial banks invested more than $1 trillion to digitally transform IT operations — and failed to realize the revenue growth they anticipated from that enormous investment.

The report found only 12% of banks appear fully committed to digital transformation (DX). Another 38% are engaged in transformation efforts but doing so amid disconnect and inconsistent strategy. The remaining 50% show no progress at all. Yet $1 trillion has been spent. That begs the question: for what?

The banks in the committed 12% are realizing more profit through cost efficiency — not revenue growth. The suggestion for the other 88% is to become fully digital with revenue growth as the focus, which means concentrating on acquiring and managing customer relationships.

A separate report from Oracle and the Otto Beisheim School of Management (WHU) suggests that while many organizations invested in the right technologies to enjoy the benefits of DX, they lack the culture, skills, or behaviors necessary to reap them.

Together these reports identify two root causes:

1. The priority of the digital initiative was cost savings, productivity, or revenue production rather than the needs of the customer. 2. The organization remained entrenched in a traditional, bureaucratic model of top-down control and decision-making.

What DX actually is

There is no single definitive description, but broadly it includes:

• Investment in and implementation of new digital technology
• Adoption of new business and operational models that remove friction and gather data from customer interaction
• Structuring all initiatives around the mindsets of customers and employees

Properly deployed and integrated, these enable a company to become agile and more capable of delivering value that meets the ever-changing needs of employees and external customers — faster. The core principle of successful DX is that everything done to achieve it should focus on knowing the customer: their needs and desires, both inside the organization and outside it.

What banking used to feel like

Consider a regional bank customer in the 1970s who did business with a specific branch. He knew everyone there and they knew him. If he needed a 30-, 60-, or 90-day note, he called the bank, explained the need, and was told the money would be in his account right away — come by and fill out the paperwork when convenient.

Truly personal banking. The core of that relationship: the bank knew him, and he trusted the bank.

A lot has changed. Rules and regulations have been implemented over 50 years for the security of banks and their customers. The less welcome change is that today banks do not really know their customers, which weakens their ability to serve them.

Why DX is now existential for retail banking

Roughly 60% of banking customers worldwide use digital channels, where 80% of customer-journey touchpoints and a quarter of sales occur. The share of US banking customers who prefer traditional forms of banking is declining rapidly. Mobile is becoming the new branch.

Meanwhile, the life expectancy of S&P 500 businesses continues to fall — from about 90 years in 1935 to roughly 14 by 2010 — and average tenure narrowed from 33 years in 1964 to about 24 by 2016. Too many businesses, retail banks included, continue to operate old models and respond slowly to disruptive competitors. With digital banking now the default for consumers, erosion by fintech makes DX adoption an imperative rather than a project.

What to do about it

• Make the customer's need the stated priority of every digital initiative, and measure it that way.
• Push decisions toward the people closest to the customer instead of up the hierarchy.
• Rebuild knowledge of the customer: consolidate records, unify channels, and make the full relationship visible to whoever answers.
• Treat culture, skills, and behavior as part of the technology budget, not an afterthought.
• Ship small, measure, and adjust rather than planning a multi-year program in one pass.

Technology alone did not deliver the return. Customer focus and culture are what convert digital investment into growth.