Banks are scrambling to harness fast-moving digital and mobile technologies to recast how they interact with customers. The stakes could hardly be higher. The winners will be able to shrink their physical footprints, massively reduce costs, tap new revenue and profit pools and deepen customer relationships.
But technology alone will not deliver a competitive advantage. Indeed, Bain & Company's in-depth interviews with more than 20 senior bankers from 15 financial service institutions around the world found that technology for its own sake can be a costly distraction, adding complexity and slowing decision-making. Leading financial institutions are addressing four major operational and organizational issues.
First, they are integrating their distribution channels. Putting customers at the center of an integrated channel strategy enables the bank to convert each channel from a mere dispenser of services into a revenue-enhancing force multiplier. Organizing marketing campaigns across channels instead of diluting them within silos gets a bigger bang out of tight budgets. In the transparent new omnichannel world, skillful management of pricing becomes a critical success factor, and the leaders are beefing up their capacity to evaluate how customers respond to price changes.
Second, they are redesigning their network. Many banks have been too quick to strip costs out of their operations by steering their technology-enabled customers to websites, mobile apps and ATMs and replacing full-service branches with automated kiosks. Leading banks are capturing both the new technologies' potential cost savings and growth opportunities by reshaping their networks in ways that profitably meet — and exceed — customers' expectations.
Branches are more important than ever as product showrooms and as places where customers seek expert financial advice. Instead of hollowing out their branch network, the leaders are converting it into a lighter, but sturdier, hub-and-spoke system. At the center of the retail network that Citibank is building in Asia, flagship stores in high-traffic prime commercial locations offer a full complement of products and advisory services. The principal function of the flagships and other full-service hubs is to serve customers' more complex financial needs, like retirement planning or home financing. At the network's periphery, smaller satellite branches — some with onsite staff and others that are fully automated — field customers' high-volume routine transactions.
Value-added advice and peerless customer service will be the hard currency of the digitally powered bank. What will set the leaders' networks apart from the competition is the investment they make in recruiting and retaining specialized financial advisers and multitalented customer service representatives. To get the greatest value out of these higher-skilled and better-compensated employees, banks will use technology to make their expertise available at all nodes of the network. Working in teams from the full service outlets and offsite video call centers, the advisers will be able to serve customers however and whenever they contact them.
Third, they are upgrading their service and operations platforms. To support this more streamlined configuration that puts the customer experience at the core requires a redesigned IT architecture that delivers a seamless customer experience across all media and channels. The new business-led IT organization gathers all customer information online and makes it available through a single customer relationship management system to frontline employees and advisers, wherever the bank touches them.
Finally, they are fortifying their brand. With barriers to entry falling, wireless telecom providers like Verizon, online payment systems like PayPal and internet powerhouses like Google are drawing up battle plans to take on traditional banks by offering greater speed, convenience and lower cost. As digital technologies and changing customer behaviors shift the competitive landscape, leading banks are sharpening their market intelligence to scan for emerging competitive threats. They are scrutinizing each link of their value chain to assess potential vulnerabilities and erect defenses to reinforce their higher-profit-margin businesses.
Unless it becomes a top priority, pushed urgently by bank senior management, a digital strategy will easily lose momentum. Innovation cycles have shortened from years to months. With limited resources to invest in new technologies, banks will need to hone the disciplines for making small bets on a portfolio of promising ones, test and refine them quickly, team up with innovation partners and fully commit to the ones that show the best potential. To keep pace, winning banks will need to adapt their business model to become more transparent, able to execute quickly and focus relentlessly on customers.
Dirk Vater and Peter Sidebottom are partners at Bain & Company and are based, respectively, in Frankfurt and New York.