Banking on digital Three actions banks can take to generate more value from their digital investments

2 Banking on digital

1 “The Future of Fintech and Banking: Digitally disrupted or reimagined?” Accenture, 2015.2 Kieran Hines, “Global retail banking technology spend to reach US$131bn by end 2015,” Ovum press

release, April 27, 2015. Retrieved September 2, 2015 from http://www.ovum.com/press_releases/global-retail-banking-technology-spend-to-reach-us131bn-by-end-2015/

3 Accenture digital index research into banking in Germany and Switzerland. Accenture’s Digitization Index measures how far a company has progressed on its digitization journey. It defines digital maturity in the context of digital strategy, digital servicing and digital enablement.

4 Accenture research analysis of Bloomberg data, October 2014.

The digital disconnectTo take full advantage of digital technologies, banks can no longer think like traditional banks. They need to think—and act—like digital entrepreneurs. A deep understanding of digital’s potential, coupled with sound economic models and data-driven insights, will allow them to re-imagine their digital strategies and place digital bets that pay off big.

Customers now inhabit an “always-on”, connected world, and they demand seamless, digitally enabled experiences from all their providers, including banks.

By providing the right interactive experiences, banks will find it easier to retain customers in a world where digitally savvy financial technology (fintech) players are waiting to snap them up. Global investments in fintech ventures tripled to $12.21 billion last year, signifying the scale of the competitive threat they pose.1

Understandably, banks are upping their digital investments.2 Yet, their returns are generally flat. Whereas companies in the retail, consumer goods or media industries can link digital spending to economic gains, there’s no correlation between the digitization index of banks and their financial performance.3 In fact, since 2010—when many banks became serious about digitizing their operations—banking revenues have declined and the average return on equity (RoE) for banks in mature markets has stagnated at around 6 percent.4

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• Increase revenues by up to 55 percent over the next five years. Digital customer acquisition and cross-selling of new services will be the main drivers of this growth.

• Reduce costs by up to 30 percent over the next five years. Process automation, distribution network optimization, application and infrastructure modernization, and the use of transaction factories will be critical.

• Achieve RoE of approximately 15 percent in mature markets.5

A solid understanding of digital economics, backed by sound economic modeling capabilities, can help banks achieve these types of results. Digital banking winners adopt a continuous cycle of planning, target-setting, experimenting with or optimizing digital programs, and tracking outcomes. That process reveals the needs and value drivers of the digital customer, the products and capabilities that banks require, and the pricing models that make the most sense. Those insights allow banks to develop true digital business models and profitable digital investment strategies, exploit new revenue sources and value levers, and become indispensable “Everyday Banks” that fulfill customers’ financial and non-financial needs.

Transform banking with digital economicsThe digital opportunity in banking is huge. When compared to their peers that do nothing, banks that successfully implement internal and external digital strategies can potentially:

5 Accenture analysis (derived from the Accenture Return on Equity model for banks).

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Banks can do three things to improve the likelihood that their digital initiatives will pay off:

1 Adopt digital lessons from other industries

Customer expectations are now set by the best online and digital experiences delivered by providers in other industries. Banks can learn from these digital champions, for example:

Consider digital as a discrete business —not just another channelUber manages the largest taxi fleet in the world; yet it doesn’t own a single car. Their digital end-to-end experience becomes their product and it gets continuously optimized—you can now finalize the transaction with Uber by just closing the door of the car without taking out your credit card or cash.

Adopt a customer-centric view and flex services to meet each customer’s needs across all touchpointsDigital champions not only monetize these touchpoints, but encourage users to interact frequently. Amazon uses each point of contact with customers to generate insights—and new transactions.

Understand (and measure) what mattersLeading digital players understand the impact of digital value drivers such as the number of touchpoints, adoption rates for digital services and digital cross-selling. They also measure the impact of their digital investments along relevant economic metrics—from digital customer acquisition to customer loyalty to cost reduction. These metrics guide future digital investment decisions.

Create agile delivery organizations that can adapt to fast innovation cycles and bring new offers to market quickly Digital champions not only adopt agile delivery methods for their own IT projects, they create open platforms and engage with partners that develop innovations on their platforms. They create a culture of experimentation and collaboration.

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Develop “Everyday Bank” ecosystemsThe future of banking lies in the creation of everyday banking partnerships that simplify customers’ lives and offer a more diverse and more valuable range of services. Union Bank and peer-to-peer lender Lending Club formed a strategic alliance through which the companies work together to create new credit products for customers and, in the process, tap new sources of revenue.6 Turkey’s Garanti established an ecosystem that extends to non-banking services. Its iGaranti app revolutionizes mobile banking. In addition to offering saving suggestions, the app analyzes spending patterns to provide customized merchant discounts, relevant contextual offers, and brand-specific exclusive campaigns based on customer insights and location-based information.7 The Accenture Strategy 2014 Global Consumer Pulse Research found that one-third of customers are interested in these types of ecosystems and innovative banking models.8

Become innovation hubsBy allowing technology innovators and even fintech players to develop new offerings on open platforms, banks can become centers of insight and leaders in rapid prototyping and experimentation. Crédit Agricole launched an open Application Programming Interface (API) in 2012. By enabling developers to build apps on top of its services, the bank now has a range of apps providing expense management, social payment and finance analysis tools to customers.9

Explore opportunities in untapped areasDigital opens up new possibilities in areas yet unimagined. There is, for example, no reason banks can’t offer an end-to-end solution for home buyers, sellers and owners that is centered on banks’ mortgage offerings. Ancillary, digitally enabled services might include value assessments, legal advice or a variety of services such as moving, security or maintenance—all orchestrated through a network of partners and tailored to individual buyers or owners.

6 “Lending Club and Union Bank Enter Into Strategic Alliance,” Lending Club press release, May 5, 2014. Retrieved July 28, 2015 from https://www.lendingclub.com/public/lending-club-press-2014-05-05.action

7 “The Everyday Bank: A New Vision for the Digital Age,” Accenture, 2015.8 Accenture Strategy Global Consumer Pulse Research, 2014.9 “The Future of Fintech and Banking: Digitally disrupted or reimagined?” Accenture, 2015.10 AIB eMortgage Calculator. https://mortgage.aib.ie/

2 Move out of the banking “comfort zone”

Margins on traditional banking products are low due to low interest rates, regulations and fierce competition. Banks that are willing to end their reliance on outdated business models and pursue new opportunities will find new sources of growth. There are several ways to achieve this shift:

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Among the many ways banks can use digital to drive cost reductions, straight-through-processing is one of the most significant. AIB, for example, has digitized its mortgage application and offers quick online mortgage approval.10 The optimization of physical distribution networks, IT spending and just-in-time transaction factories can produce even more savings. New digital products, public cloud services and other unconventional architectures are even making it possible for banks to construct any-to-any, cloud-enabled and zero back-office platforms that make traditional back-office functions all but obsolete.

Become an “Everyday Bank”The days of investing in digital simply to “be more digital” are coming to an end. What’s emerging is a shift to everyday banking and, with that, a new approach that considers digital more than an additional channel, but a business area with its own value drivers and economic models. In this new era of banking, digital takes center stage. In this world, the amount of digital investment and the degree of digital innovation is less relevant than the business outcomes those technologies can enable.

3 Pursue the cost-reduction potential

While digital can certainly open up new sources of revenue, it also allows banks to improve efficiencies across the enterprise.

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Co-authorRobin Racky robin.racky@accenture.com

AuthorFrederic Brunier frederic.brunier@accenture.com