Because pivoting to a new business model is not something that will happen quickly, banks must begin the journey today. Three actions can improve their likelihood of success:
BE BRILLIANT. Traditional banks are notoriously inefficient, with costto-income ratios typically above 60 percent.17 Any path forward must begin with banks shoring up core business operations to drive their cost-to-income ratio to a healthier 40 percent. The goal is to “stop the bleeding” and create a stable foundation from which to pivot or grow. Key components they need to get right include personalization of customer service, multichannel integration, and digital channel enhancements. It will also be imperative for banks to use new metrics to measure value in the digital age.
Traditional banks have historically compared against peers by using a standard set of key performance indicators, including return on equity, return on assets, loan growth, and cost-toincome ratios. When they compete against digital players, these traditional measures of success are no longer sufficient. They must be augmented with new KPIs such as share of trust, share of mind, data value, digital platform value, ecosystem value, simplicity and even basic awareness.
Most banks will be tempted to pivot toward the Digital Relationship Manager model because they believe it is an evolutionary, not revolutionary, step. The truth is that few will thrive under that new business model. Banks must realistically assess their abilities to deliver the broad array of core banking services customers now demand. In all likelihood, they will come to the conclusion that their future success does not lie in offering universal services for everyone, but in delivering a narrower, dominant service, platform or product that meets a specific need for customers or the financial (and nonfinancial) sector.
Once banks have decided the direction they want to go, they need to jettison those parts of the value chain that will likely be disrupted. This may involve abandoning certain lines of business or even certain customer segments and, instead, focusing on those areas in which they excel and are most likely to maximize future value.