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Retail Banking

Global retail-banking revenues rose by an estimated 3% in 2015, from $1.54 trillion to $1.59 trillion. The growth rate of global revenues is expected to show relative recovery during the second half of the decade, rising close to precrisis levels.

Yet despite this anticipated rebound, the retail-banking industry faces unrelenting, disruptive challenges. Banks that hope to prevail must urgently pursue digital simplicity. They must develop digital and data capabilities that radically simplify their businesses while dramatically improving the customer experience through greater efficiency, quality, and speed. 

Banks will have to make this digital transformation amid a welter of challenges and risks. They face ongoing margin pressure, as well as intensifying competition. Regulatory oversight will continue to tighten. Return on equity will remain constrained as fines and restructuring costs affect profit, while revenue growth will struggle to keep pace with increased capital requirements. 

Ultimately, in order to achieve retail-banking excellence, or REBEX, banks need to be more proactive and precise in targeting and engaging customers. To survive, they must reimagine every element of the customer experience—deepening, broadening, and customizing the customer relationship in a newly agile manner.

The Value of Bionic Banking

Transforming Retail Banks for the Digital Age

BCG’s Ian Walsh explains how the future of retail banking lies in achieving the perfect balance between digitization and human interaction – or what we call “bionic banking.”

Retail Banking and Big Data

Retail banks are data businesses. A large part of their competitive advantage is based on better use of the information that data provides and the insights it affords. 

Yet our work with leading retail banks around the world shows that despite an early start in using new data streams, as well as considerable resources, most banks are far from realizing big data’s full potential compared to many other industries. 

There are at least four areas in which focused and coordinated big-data programs can lead to substantial value for banks in the form of increased revenues and higher profits: 

  • Improving current practices. Leverage the vastly improved understanding of customer behavior provided by big data to improve specific areas with point analytics. 
  • Transforming core banking processes. Use platform analytics to regularly introduce data-driven improvements along the full value chain of core processes. 
  • Boosting IT performance. Use the benefits offered by big-data technologies—such as scalability, easy use of multistructured data, and economics—to improve or radically change legacy IT. 
  • Creating new revenue streams. Leverage the insights generated by banking data, most likely in an anonymous way, to create new revenue streams.

Reaping a Pricing Windfall in Retail Banking

Pricing goods and services is an important capability for companies in every industry worldwide. For today’s hard-pressed retail banks, it is a critical one. Yet few banks mine the full potential of pricing to generate significant revenue and profit. 

Superior pricing performance offers a potential windfall for banks caught in the current cross fire of slow growth, heightened competition, price-conscious customers, and intensifying regulatory change. Although success requires a dedicated initiative to define an optimal pricing strategy, the payoff is substantial. Pricing programs can provide a sustained revenue lift of 5% to 15%, all of which goes directly to the bottom line. 

Ultimately, there are three levers that banks must pull to capture the full value of pricing:

  • Optimize price structures and levels on the basis of the value perceived by customers and on competitive dynamics, while taking into full account all product costs and risks.
  • Differentiate pricing by segmenting customers, even to the individual level when warranted, according to such criteria as willingness to pay and value to the business.
  • Improve price realization—that is, achieving previously established price levels and goals—by, for example, increasing the effectiveness of discounts and promotions.

Financial Institutions
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