Banks have struggled financially since the global economic crisis. For many banks, profits have been stagnating. At the same time, bankers surveyed seem overly confident they are meeting customers’ expectations. While 62 percent of retail banking executives indicate their organizations are able to deliver an excellent customer experience, only 35 percent of retail customers share their view, a 27-percentage-point difference. For wealth management, the gap was even greater, at 41 percentage points. 75 percent of wealth-management executives believe they provide an excellent experience, while only 16 percent of wealth-management customers believe their banks provide personalization, compared with 45 percent of bankers.
Banks are not challenged across every dimension. In terms of timeliness and consistency, customers are actually more satisfied than banking executives expect. But in the key areas of
customers believe wealth managers provide an excellent customer experience, compared
personalized customer experience across interactions, and encouraging customer loyalty, bankers significantly overstate their effectiveness (45 percent for bankers, 30 percent for customers) and loyalty, (48 percent for bankers and 35 percent for customers).
Customer trust is also overestimated by banking executives surveyed. As many as 96 percent of bankers believe their customers trust them more than other non-bank competitors. Only 70 percent of customers agree. And fewer still – 67 percent of customers – trust their primary bank compared to other bank competitors.
Antagonist or ally
Traditional bankers face a stark and, for many, existential decision. They can work to defend and protect themselves from an emerging onslaught from fintechs and others – or they can embrace them.
Banks that pursue a defensive strategy will face a perilous journey. They will need to improve their service capabilities constantly to redress fintech innovation across broad and rapidly changing dimensions. And they will need to do it at ever-lower cost and greater speed. They will need to dissuade customers from embracing new services from new entrants. For those unable to maintain customer loyalty, the implications will be dramatic. Income sources will diminish incrementally as customers shift more and more of their business to innovators. Profitability will decline, along with market share, as previously strong incumbents shrink into marginal participants or acquisition targets.
Alternatively, bankers can work to position their organizations at the center of rapidly evolving banking ecosystems. While fintechs are able to leverage new technologies to compete against banks in specific functional activities, they do not yet have the benefit of banks’ customer relationships. Bankers have historically created value through the specific banking functions or services they provide. But in a future where these are readily replicable, banks’ value will be centered on the quality of the customer relationships they maintain.
Implications and recommendations
Banking executives and employees alike will need to recognize that transformation will be a permanent condition. There is no end state. The bar will always be rising, goal posts shifting, innovation deepening and partnerships evolving. Change will be the only constant, and those that cannot adapt quickly enough will face marginalization and decline. To embrace change, bankers must focus on four key areas of their organization.
Strategy – Catching the wave
Strategy will need to recognize the permanence of change. Traditional banks will refocus on their customer relationships. These relationships will become banks’ single-most-important asset, and they will need to be more intimate, nurtured and protected. Banks will need to prepare to cede many traditional core functions to partner organizations, while maintaining clear values and brand, and promoting organizational stability and security.
People – Reskilling for success
Banks will need to act decisively to future-proof their employees. In an age of ecosystems, banks will be less about transactions processing and more about relationship management and engagement – with customers, partners and stakeholders alike. Different capabilities will be required – collaboration, innovation and entrepreneurialism, among others. Reskilling will be necessary, as will selective recruitment of a new, different breed of banker.
Process, organization and culture – Open for business
Banks will need to change their internal culture so that they can embrace far-reaching implications of becoming central to emerging ecosystems. As an ecosystem orchestrator, banks will collaborate seamlessly with partner organizations, customers and others. Security, compliance and control will need to be balanced against an imperative of experimentation and collaboration with an ever-changing array of prospective collaborators. Organizational structures will become porous, and banks will build cultures of common understanding to encourage desirable behavior on the part of both bank employees and partner organizations.
Technology – Best-in-class
Application programming interfaces (APIs), connectivity and coordination characterize banking ecosystems. Bank technology will become the model for extreme agility of an otherwise highly regulated industry. Initial investments to transform and re-architect proprietary systems will morph into a substantially lower capital environment in which the bank IT function will interact deeply with partners as it manages extended, diverse networks.
Banking is, indeed, at a critical moment. Traditional conceptions of what a bank does and how it does it will change fundamentally and permanently. The most successful banks of tomorrow will orchestrate broad portfolios of partners to deliver compelling banking experiences and services to their customers. Innovations from one organization will be shared across ecosystems quickly and efficiently in a virtuous cycle in which everyone is better off: bankers, partners, customers and other stakeholders. Leaders of the future are already transforming today, equipping their organizations and people with new skills, cultures, technology and processes. These leaders, rather than being oblivious or afraid of disruption, are positioning themselves at the epicenter of what promises to be the most dramatic evolution in banking the world has ever seen.