You could more easily find a yachtsman willing to sail into a sustained 40-mile-an-hour headwind than a retail bank trying to stick with a nondigital strategy.
Banks know where the prevailing economic and technological forces are pushing them these days. But they are moving at very different speeds and focusing on different milestones.
BCG’s latest bank study shows that the economic benefits are increasing for traditional retail banks that have implemented the most effective digital strategies. Between their more developed digital strategies and (in many cases) regional advantages, the top-performing banks now have cost-income ratios that are 19% better than those of median banks. That differential has been growing for the past two years.
On the other hand, the pressure to embrace a more digital mode of operation has eliminated the differences in certain service areas. For instance, most banks have implemented online and mobile self-service capabilities. Likewise, most banks have added enough automation to their call centers that they can provide acceptable customer service with a smaller operations staff and at a lower cost. Once big advantages, these capabilities now represent mere table stakes.
This year’s data, part of BCG’s annual benchmarking of banks across more than 100 key performance indicators, underscores the extent to which banking is a local business affected by each market’s regulations, competitive dynamics, and consumer behaviors. For instance, retail banks in North America have structural advantages—including high fee and commission ratios—that give them profit margins that wouldn’t be possible elsewhere. Banks in the Netherlands, Belgium, and Australia—countries where most customers interact with their banks primarily through digital channels and rarely set foot in a physical bank—can embrace digital delivery more aggressively than banks in less-connected countries can.
But BCG’s Retail Banking Excellence Benchmark (REBEX by BCG) also uncovers sizable differences between local banks. Against local competitors, banks are in a position to control their own destinies.
Looking at the universe of banks in six major geographic regions—North America, Asia-Pacific, Western Europe, Latin America, Eastern Europe, and the Middle East/Africa—we observe that banks are about midway through their transformation journeys. Many banks have made progress in digitizing for cost, although they still need to move from pilots to large-scale initiatives to reap the benefits of their digital investments. Banks are less far along in digitizing for value. (See Exhibit 1.) The goal of this more ambitious phase is to find ways to serve the customer better—and in doing so, to earn more revenue per customer and increase retention. The best way to accomplish this is through a reinvention of the customer engagement model.
To make further progress in digitizing for value, retail banks around the world must address two emerging imperatives: personalization and continuous delivery.
The personalization imperative has several dimensions:
The issue of continuous delivery, meanwhile, involves two key points:
In most regions of the world, the bank transformation imperative (or as we have called it in the past, the imperative for “bionic transformation”—see last year’s report) is coming at a time of improving conditions in the sector. BCG Banking Pools, our forecasting unit, forecasts a 5.3% annual rise in global retail bank revenues between now and the end of 2021, exceeding the fastest growth recorded in the past decade. (See Exhibit 2.) The gains will be greater in some regions than in others, however: