cookies, McKinsey_Website_Accessibility@mckinsey.com. 3. RoE figures based on analysis by McKinsey’s Financial Services Practice. They’ll ensure you get the most out of your people and digital investments by aligning them with the critical moves … The management team stays in place and the focus is on bite-sized advances. Exhibit rural versus city) and customer segment per customer segment, to sum up just a few parameters. It will help you come up with creative solutions to level up your business in this digital … The survey revealed that of the FSI firms with a digital strategy, 93 percent agree or strongly agree that the objective of their 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. It is a vital change in how banks and other financial institutions learn about, interact with and satisfy customers. And the impact on the bottom line is much smaller than they thought it would be. We strive to provide individuals with disabilities equal access to our website. Digital Native. Wim Mijs and Roberto Viola have already given us some very interesting thoughts on cloud services. 1. Cons: A new line of business means a more complex organization. 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. 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. 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. Ladies and gentlemen, Thank you for giving me the opportunity to speak to you today. Banks and credit unions can use data mining for better prospect and client targeting. The important thing is to get going, to act with a sense of urgency—like an attacker seeking growth, not merely a defender hoping to hold onto a legacy position. The classic example of this kind of service is banks providing credit-card processing to retailers. It’s difficult to scale digital initiatives across the institution. They are rewarded with significant revenue growth and 14 extra points of total shareholder return. In the past, that approach was about introducing other banking products. That’s a triple win. With a knowledge engagement strategy, your business can turn that knowledge into a renewable resource. This field is for validation purposes and should be left unchanged. If you would like information about this content we will be happy to work with you. 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. Banks should consider this option if … they already possess an information advantage over competitors—or if they have the prospect of creating an information advantage, or extending an existing one, via external investments or partnerships. 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. For example, the bank used to manually trace beneficial owners through company holding structures and then manually compare owners against six different sanctions databases. You will also need to add new physical spaces that foster innovation and collaboration. The process could take days. Digital transformation initiatives are commonplace in the banking industry today, but what makes Seacoast Bank unique is the extent to which their board and senior management has embraced the journey, recognizing that digital impacts everything from how the bank needs to approach their cost structure to how they communicate with customers. A narrow focus on core adjacencies ignores the broader role a bank can play on behalf of its customers. 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. What’s holding them back? Learn from digitizing the first journey or two, then tackle the next. Deutsche Bank has agreed a multi-year strategic partnership with Google Cloud to redefine the bank's financial services. To begin, banks should think hard about a series of questions: No matter which opportunities banks decide to pursue, they will need to commit to—and invest in—new digital capabilities in areas like design, innovation, data and analytics, personalization, and digital marketing. It’s relatively easy to scale by rolling out initiatives across the organization. Never miss an insight. Facebook Communicate the transformation is essential for the bank to survive. Even banks that would like to be more aggressive find it difficult to know exactly what to do. The focus is on acquiring new customers. 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 Banks should consider this option if … they have significant market share in one or more core product areas. Flip the odds. Some banks have even gone farther and moved into nonbanking adjacencies (see outer ring in exhibit). 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. See also Commonwealth Bank, Investorville Case Study, 2013. Consumers increasingly want the best of both worlds: a digital experience when they need speed and convenience and a human experience when they need advice for more complex products such as investments or mortgages or when they have an issue or problem. Not all digital transformations succeed. Use behavioral analytics to identify consumers who are a flight risk and then create individual action plans to keep these consumers loyal. 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. Knowledge powers every decision that drives your financial business forward. Hiring strategy: Retrain existing talent and add external talent where needed, only on a bigger scale. Banks have long relied on making customers aware of relevant products as a path to growth. There’s no legacy systems to get in the way. Digital will also compete with other business units for IT services. Here’s a short checklist for recruiting, onboarding and retaining a team of advisors. When used responsibly, with respect for regulatory constraints and privacy concerns, this bank data can be analyzed for insights valuable to companies in industries outside of financial services, such as telecom, retail, consumer goods, or automotive. Innovate from within existing businesses, set up separate units, or partner with/acquire from outside? The new institution can use off-the-shelf products to launch fast. 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. 2. RoE figures based on analysis by McKinsey’s Financial Services Practice. It is important to emphasize that digital transformation shouldn’t be seen as a strategy based on technology. Sometimes digital transformation will lead a bank to shuffle the businesses in its portfolio … Taking a page from some of the larger digital businesses, banks can offer a curated and vetted mix of internal and third-party offerings. 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. The consumer journey doesn’t get much less frictionless than Amazon’s one-click ordering — see it, like it, click it, buy it. 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. Four out of five financial institutions believe that digital will fundamentally change banking and completely transform the industry’s competitive landscape. But do you have the right analytics tools to hear it? We're seeking a Digital Strategy Transformation Lead, which will … Even transforming just a few journeys can make a big difference. Funding usually comes from the P&L change budget. Reinvent your business. Lay the groundwork to build a strong advisor lineup and grow your advisor team. Banks and credit unions that digitize can achieve a 20% increase in revenues and a 30% decline in expenses. 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. Banking Strategy, Digital and Transformation Latest thinking in respect to Banking Strategy, Digital and Transformation. Success depends on engaged senior leadership that is committed to radically changing the bank,” says Boston Consulting Group. Post Bank, for example, has become the largest provider of mobile phone services in Italy. existing government-driven digital evolutions, use of mobile in banking and thus penetration), bank per bank (e.g. 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 You don’t have to pick a single operating model; Boston Consulting Group notes that many financial institutions run all three models in different markets, regions and business lines. 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?? 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. Banks considering a factory plan, for example, should have enough tech talent (particularly around APIs) to be able to maintain appropriate levels of security while serving the given product or service to third parties. Siam Commercial Bank used to rely only on the personal networks of its bankers to prospect for customers. Cons: It’s tough to change a business model that remains siloed within an existing business unit. The bank also uses data mining to create profiles of their best customers and uses reverse-lookup to find prospects with similar profiles. Banks should consider this option if.... they have significant market share in financial products that are integral to a larger buying process. So what should traditional banking providers do to remedy the situation? You can also generate more revenue from customers who manage their money with a smartphone, tablet, or PC. Unleash their potential. This kind of helpful, concierge-style service can reduce the risk of disintermediation. FSI firms are making significant investments to enhance customer experience and engagement through the development of new digital products and capabilities. Discover the features and benefits. Please email us at: McKinsey_Website_Accessibility@mckinsey.com. The vast majority point their finger at their current technology infrastructure. Investors believe fintech start-ups will become a significant force in the future, valuing those in the US at $120 billion, or 7 percent of the total equity of US banks. 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. The bank or credit union creates a new business unit and names a head of digital. 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. “We are doing it in a way that has the customer at the center of everything we do,” he adds. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. 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). Use minimal essential Just like with any major transformational initiative, you should begin with a strategy — digital is no different. It’s also clear that the digital and physical interaction preferences will change and vary country per country (e.g. We strive to provide individuals with disabilities equal access to our website. Existing efforts can provide important information about which opportunities are promising and what’s required for success. ING, for example, has partnered with US-based fintech start-up Kabbage to serve SME customers in Europe. For example, a bank might give advice to customers on how much to save for retirement or borrow for a home, or help them to determine the best rates and maturities for financial instruments. Decision 6: Buy or sell businesses in the portfolio? How many of the opportunities can reasonably be pursued and over what time? maturity, connected processes, legacy systems), branch per branch (e.g. Now I would like to talk from the perspective of a central bank and supervisory authority and in particular, about why digital transformation interests us, and what opportunities and challenges it may have in store for us. In a digital driven bank or credit union, digital is treated as a priority that needs a clearly articulated strategy, funding, talent, agile ways of working and an organizational culture that is willing to take risks. Greater Bank is evolving - embracing a future shaped by empowering our customers. 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 best place to get ideas in how to create a digital driven organization is to take a lesson from fintechs. One European bank increased daily banking revenue by almost 15% by tailoring bundle pricing to customers preferences. A large Australian bank used advanced location models to analyze which digital, human and hybrid services were the most in demand what branches. Learn more about cookies, Opens in new We have seen companies lose focus and dissipate energies by trying to do too much at once. The World Bank recently hosted an event on why now is the time to bridge the digital gender divide. What’s more, data monetization seems to correlate with industry-leading performance. The former is often the case with investment products, for example, and the latter for property-and-casualty insurance. This article was originally published on March 27, 2018. ING brought to the partnership its deep reservoir of capital and its existing relationships with prospective SME customers. Banks can grow by engaging with consumers at other stages of their decision journey. Hiring strategy: Retrain existing talent and add external talent where needed. 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. Digital transformation requires a digital transformation strategy that, as any strategy, looks at the goals, current situation and how to move forward on a transformational journey in a way that makes sense and connects the dots. 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. Most appropriate for: Banks and credit unions in the early stages of digital transformation. Strategy pros and cons. Other banks are partnering with care providers and health insurers to provide a consolidated billing platform that makes it easier for consumers to pay for medical expenses. Imagine what goes through consumers’ minds when faced with a journey at their bank or credit union that takes days or even weeks. All content © 2020 by The Financial Brand and may not be reproduced by any means without permission. Having spent several years in the European Parliament, it is always a pleasure to be back in Brussels. Keep the focus of digital transformation on enhancing the customer experience. So what does digitizing the consumer journey look like? Integrating digital applications with the legacy infrastructure is a particular sticking point. (Translation: “It’s our core DP’s fault!”). tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Boston Consulting Group reports that the percentage of consumers who want a hybrid experience has increased to 43% from 37% in 2015. “Digital transformation nearly always requires many internal stakeholders to do things in a different way,” says Martin Henley, SVP, technology services sector for Globality.. “That likely includes changing or breaking processes that have been in place and have worked well at some point, changing how stakeholders interact with their clients, even changing their roles. Digital banking can give a boost to your bank’s bottom line. “But all must consider how they can reshape their distribution models, improve their value propositions and develop end-to-end consumer-centric journeys to increase growth and customer satisfaction.”. Everybody says you need it, but you aren't sure. Digital as New Line of Business. 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. That’s the approach that HSBC took. Financial institutions that digitize the most important consumer journeys can increase revenues up to 20% and reduce costs by up to 25%. Please try again later. Select topics and stay current with our latest insights. Press enter to select and open the results on a new page. The organization doesn’t want to change. Digital as Business as Usual Plus. 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. Moving into adjacencies—both banking and nonbanking—allows them to take advantage of their already strong franchises by offering new services to current customers. We’ve found that most large institutions already have some initiatives underway that involve pursuing one or more of these six growth strategies. 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. Kabbage’s easy-to-use interface and novel risk-management algorithms allow it to deliver decisions on loan applications in a matter of minutes. Find out how the COVID-19 pandemic has impacted bank marketing strategies in the current term and as banking leaders look to the future. 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. Intended for investors, the quarterly report quotes numerous statistics explaining “why digital matters” to the organization. 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. Commonwealth Bank in Australia (CBA), for example, wanted to play a bigger role in the home buyer’s journey. 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. It’s too overwhelming — and costly — to try to map and change multiple consumer journeys. Subscribe to The Financial Brand via email for FREE! Now, the bank also analyzes payment networks to find non-customers who are affiliated with their current customers. Digital upends old models. Antony Cahill, COO at NAB, describes it as “fundamentally reimagining and redefining all customer experiences.”. Boston Consulting Group recommends starting with a few key journeys that have the greatest potential to have the biggest impact. What capabilities should be in place to go after these opportunities. 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. Here are the top 21 digital transformation strategies recommended by businessmen and company executives who have successfully overcome the challenges of digital transformation and the pains associated with it. Discover how to exceed expectations, increase card use, boost brand awareness and stay top-of-wallet amid rapidly evolving expectations. When transactions are completed on a mobile app instead of in a branch, they can be dramatically cheaper. 3. 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. But according to research from the Boston Consulting Group, less than half (43%) confess they don’t even have a digital strategy. And for many consumers, that’s the purchase journey they expect from everyone they do business with. Your data doesn’t just ell a story. Pros: New economies and new capabilities can have a rapid impact. “Data mining can help banks and credit unions reinvent themselves as partners that offer highly tailored solutions to their clients, rather than suppliers trying to push products that might not match consumer needs,” says Boston Consulting Group. industry is on the cusp of a digital transformation right now. Banks and credit unions can use data mining to improve pricing. The banks just use the data they already have to verify their customers’ identities, but then provide it as a secure  capability at a truly national scale and gain access to new potential customers. Transforming the Client Experience Across Retail, Commercial, and Wealth, Improve Performance and Increase Organizational Efficiency, How Citadel Credit Union Launched a Brand During COVID. 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. The bank then contacts these non-customers to extoll the cost and speed benefits of being on the same Siam Commercial Bank platform as their business partners. Now, how do you keep momentum? They opened, closed, and renovated branches and trimmed its branch footprint by 30%. Please use a corporate/work email address instead. They will have plenty of time to accommodate to the reorganization. Stay current on your favorite topics Assure people that the change will not happen overnight. We use cookies essential for this site to function well. Subscribed to {PRACTICE_NAME} email alerts. They’ve been overly cautious, playing defense, with me-too digital initiatives primarily designed to counter moves by actual or potential disruptors. 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. Download our Beginner's Guide to get answers to your big questions about why, when, and how. Please click "Accept" to help us improve its usefulness with additional cookies. Since the best talent typically wants to work with innovative digital platforms, hiring will be easier. And legacy systems will remain an issue. A look at key questions to ask for your digital transformation strategy. The app also provides a mortgage calculator and other financial tools, plus the option to connect with local realtors. That said, most such initiatives are small and typically need to be scaled up to take full advantage of opportunities large banks face. Digital Growth: Is Your Institution Ready Now? Peter Weill and Stephanie L. Woerner, “Thriving in an Increasingly Digital Ecosystem,” Sloan Management Review, Summer 2015, 27-34. People create and sustain change. The fintech start-up Moven built a pioneering mobile money-management app and is now partnering with financial institutions to provide this service to retail customers. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Subscribe. In addition to opening up new revenue streams, this approach can also be a useful way for to banks to collect new data. Download this insightful perspective on the changes in the financial services industry and what relevant actions are required to rise to these challenging times. In other words, you don’t go digital just because you can. And an astonishing one-in-five banking execs consider their bank or credit union “market leading” when it comes to digital. Arkadi Kuhlmann and Bruce Philp, The Orange Code: How ING Direct succeeded by being a rebel with a cause, Wiley, 2008. By moving into ecosystems beyond the traditional core, banks are able to tap their existing client base and operational capabilities, strengthen engagement, and capture data that will provide a more complete view of customers’ needs. Our report explores five options for banks to consider as they implement their core banking transformations. Most appropriate for: Banks and credit unions that have already progressed in digital transformation. For most consumers, working with a bank is just a means to an end: ensuring a secure retirement, growing a business, or buying a home, for example. When will they get their act together? As we see it, many banks haven’t set their sights nearly high enough in response to disruptive attackers. They don’t have the talent with the necessary digital and analytics skills. 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