Retail banks of the future

Partners Mike Baxter and Dirk Vater explain how retail banks can use digital technology to reinvigorate their businesses.


Retail banks of the future

Mike Baxter and Dirk Vater explain how banks can use digital technology to reinvigorate their businesses.


Mike Baxter: Retail banking is undergoing a transformation. As a business, it is becoming digitalized, and we estimate that by 2020 fully 95% of interactions between customers and their banks will be performed through some digitally assisted mechanism. This isn’t driven by banks—this is driven by customers’ expectations and their desire for more convenience, ease and engagement in the way they interact with their service providers. And we’re finding that banks are having to respond by changing their businesses and their core business models to become what we call "digical," the combination of digital and physical. Because the physical components of banking will endure. And banks are finding new ways to bring together digital channels and physical channels to provide those customer experiences that are uniquely differentiated.

Dirk Vater: Bain & Company conducted a Global Benchmarking Survey in 2013, in which 78 leading retail banks around the globe participated. In our Global Benchmarking study, we analyzed five key imperatives to build the retail bank of the future.

Regarding the first imperative—digitally-enabled customer experience—leading banks are offering all simple products already online. Customers can purchase them through the Internet, smartphone or tablet. These leading banks are even starting to offer complex products through their digital channels.

On the second imperative—the omnichannel sales and service model—we at Bain & Company think that branches still will be of high importance in the future. Nevertheless, there will be fewer branches with different formats and different functions. The one-size-fits-all branch is over. There will be differentiated formats for differentiated regions customer segments, etc.

Mike Baxter: Banks are also putting technology at the heart of their strategy and execution. Technological change to enable this digitalization of the industry is a huge challenge. Typically today, about 45% or so of IT spending goes into running the bank functionality in the back office—things that customers don't typically see, and things that are basically keeping the lights on. Maybe 5-10% for many banks is focused on changing the bank in the front office—so deploying new technologies that customers are going to see. In the banks that are most advanced on digital, that balance is radically shifting.

Fourth, banks need to fund this journey through efficiency gains and reprioritization across their existing business cost basis. This journey is very expensive for banks. It takes a lot of investment, and it takes some significant amount of time. And the challenge is that there is no free lunch. This is causing them to aggressively decommission legacy infrastructure.

Dirk Vater: And the fifth and last imperative is to build an innovative organization, to systematically change the organization. It’s the time of trial and error. Leading banks are changing the organization, their processes and, at the end, how they innovate.

The retail bank of the future has to develop two strategies. On the one side, the digical transformation and on the other side the digital reinvention. Both strategies need a systematic roadmap to assure yourself and the organization that you are on the right track.

Mike Baxter: Banks have been set up as control organizations. They're used to being slow and cautious and deliberate in the way they drive change in their organization. Well now, when there are 3,000 start ups out there innovating around you, you have to move at pace.

One of the things that we see in many markets around the world is that those banks have made the fastest progress on digital are already winning in the minds of their customers. It is critical for banks to get on the journey as quickly as they can and to make as much progress as they can going forward to stay relevant to those needs that their customers are already expressing, and are going to increasingly drive their choice of banks going forward.

Read the full report: Building the retail bank of the future


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