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Retail Banking

Retail banking remains an essential part of the financial services industry, accounting for 45% of all banking revenues. But while the sector has recovered from the 2007-2008 financial crisis, the growth picture globally is mixed. Banks are seeing a return to precrisis levels of revenue expansion, but economic, demographic, competitive, and technological changes will continue to exert downward pressure through the end of the decade.

Indeed, despite concerted efforts to stabilize performance, many retail banks are still plagued by long cycle times, inconsistent channel experiences, and generic customer propositions. Unless they make deeper, bolder changes, profitability and competitiveness will suffer.

Banks can make these changes and substantially improve performance by more efficiently and effectively fusing digital functionality with personalized, human interaction—in other words, by becoming more bionic. A bionic transformation includes blending digital and personal interactions to create a more responsive and cost-effective distribution model, articulating a value proposition that combines human judgment with data power, and adopting a customer journey mindset with end-to-end processes that are supported by robotics and machine learning. A bionic transformation has the potential to generate a 30% increase in net operating profit by 2020 for retail banks.

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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