To stay relevant, banks must digitize: BCG
As the business landscape becomes increasingly digitized, banks would do well to adopt new technologies and advance their digital capabilities, according to “Banks Brace for a New Wave of Digital Disruption,” a report from Boston Consulting Group (BCG). Act too slowly – or not all all – and risk being overtaken by “digital giants” such as Google and Amazon.
The banking industry has recovered since the 2008 banking crisis, but a recovery isn’t enough. For an optimal, future-proof position, “banks need to start acting like digital giants before digital giants act like banks.” This calls for digital transformation throughout all parts of a bank’s organization.
"Banking revenue pools are just too big and too attractive for today's digital giants to ignore forever," Monish Kumar, a BCG senior partner and coauthor of the report, said. "Banking CEOs must set a comprehensive digital transformation in motion to replace the incremental initiatives that are so common today. This will enable banks both to drive disproportionate market share gains against slower competitors and also to defend themselves against the digital giants.”
Threats that digital giants impose on banks occur in areas such as customer access and brand power. Most people are aware of Google and its services, for example, and are able to easily access them. Couple that with growing customer trust – plus an inherent scale and data advantage - and the idea of Google gaining a foothold in the financial services or banking industry becomes rather ominous. A 2014 report by Forrester Consulting entitled “Why Google Bank Won’t Happen,” for example, predicted that while a “Google Bank” is unlikely, the company is poised to disrupt financial services in the areas of payments, money management, product comparisons, and financial advice.
The BCG report lays out several recommended steps for banks to take. Done correctly, these actions will position banks in the most advantageous position to take on new competition. BCG encourages banks to drive to scale; digitize end-to-end customer journeys; leverage big data, analytics, and AI; pursue partnerships to increase capabilities and scale; adopt new, more agile ways of working; and place a focus on increased cybersecurity. Overall, the report emphasizes one key point to banking institutions: the time to act is now.
"Ultimately, bank leaders know that digital technology and changing customer behaviors will take the industry in new directions,” Shubh Saumya, a BCG partner and coauthor of the report, said “But many of them no longer think that disintermediation is likely in the near term. They expect an inflection point that will signal it's time to move faster. That inflection point, however, is already here."
