Digital Disruption Will Force Retail Banks to ‘Radically Simplify’

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While retail banks have begun a tentative financial recovery, disruptive challenges are accelerating and will force banks to develop digital capabilities that “radically simplify” operations and reinvent customer service, according to a report by The Boston Consulting Group (BCG)…

LONDON, UNITED KINGDOM--(Marketwired - May 10, 2016) - While retail banks have begun a tentative financial recovery, disruptive challenges are accelerating and will force banks to develop digital capabilities that "radically simplify" operations and reinvent customer service, according to a report by The Boston Consulting Group (BCG).

That mandate for "digital simplicity" is the central finding of the expanded research behind BCG's sixth annual report on global retail-banking excellence -- or REBEX -- titled Banking on Digital Simplicity, which is being released today.

Global retail-banking revenues rose 3% in 2015 to nearly $1.6 trillion, the report says in an overview of the industry's financial performance. It cites wide disparities in regional banking results and continuing pressure on profit margins globally. Asia retained its role as the industry's growth engine, amid signs of growth in North America, while Western Europe remained sluggish.

Top Performers Reap the Financial Rewards
The report's annual retail-banking excellence benchmarking found that the top operational and digital performers among the world's leading banks reaped the lion's share of financial rewards -- for example, 50% higher average pretax profit per customer than the median globally.

"The top performers continue to widen their lead over the rest of the pack," says Ian Walsh, a BCG partner, the global leader of the firm's retail-banking sector, and a coauthor of the report. "Banks that hope to join them at the top will need to jump-start their digital transformation now."

Banks that develop digital and data capabilities to radically simplify their businesses while dramatically improving customer experience through greater efficiency, quality, and speed can achieve 50% more revenue per customer than peers, the report says.

A committed, full-scale digital implementation is the only way for banks to achieve four goals that will allow them to rise above the median, according to the report:

  • Understand, strengthen, and deepen customer relationships.

  • Reimagine customer journeys from front to back using digital technologies.

  • Create agile, simple, and highly collaborative organizations.

  • Enhance digital capabilities.

"The overly deliberate and cautious approach to digitization taken by many banks is outdated, leaving them fighting yesterday's battles and shrinking in today's markets," says Michael Grebe, a BCG senior partner, the global topic leader for BCG's Simplify IT program, and a coauthor of the report.

Global Consumers Drive Banks' Digital Transformation
The digital transformation of banks, the report says, is being driven worldwide by consumers accustomed to the advances of retailing's digital pioneers -- such as Amazon, Netflix, and Uber. Customers now expect quick and convenient service from their banks as well -- through simple, intuitive digital interfaces.

Insights into digital behavior and expectations were drawn from BCG's Consumer Digital Banking Surveys in nine countries. In China, for example, the survey found that customers who use both human and digital channels are two to six times as likely as other customers to be affluent, but that they are also more challenging to serve.

Customer advocacy for retail banks is much weaker than for most industries, the report says, citing results of BCG's 2015 Brand Advocacy Index survey of consumers. Globally, just 37% of customers positively recommend their banks.

Drawing on BCG's financial-technology (fintech) database, the report documents the increasing disruption that retail banks face from the growing array of fintech competitors and other upstarts. Fintechs are beginning to erode the profitability of traditional banks' business lines -- from lending to personal finance, payments, and retail investments -- often by offering faster service, less expensive products, and a better customer experience.

"Fintechs and other new competitors threaten to disintermediate banks' customer relationships," says Jean-Werner de T'Serclaes, a BCG partner and a coauthor of the report. "Banks should act urgently to prevent this and avoid becoming a utility in the eyes of customers."

Funding for fintechs is accelerating: $11 billion in total funding ten years ago grew to a cumulative $46 billion by the end of 2015, the report says. Investment is strongest in lending and crowdfunding, data and analytics, and payments.

An Expanded Base of Research on Retail-Banking Excellence
For this year's REBEX report, BCG expanded the research underlying its annual review of retail-banking excellence to provide a more comprehensive assessment. Consumer surveys, financial and fintech databases, and other resources were added, and the benchmarks for operational and digital excellence were enhanced.

The benchmarking profiled the practices of 20 of the world's leading retail banks, a group of 40 institutions that BCG calls the "premier league," selected for their size and the strength of their capabilities. The banks participating in this year's benchmarking represent 220 million customers and 26,300 branches worldwide.

The benchmarking revealed that the leading banks are boosting investment in digital innovation to differentiate themselves in the eyes of digitally demanding customers. Banks continue to encourage customers to migrate to self-service, both online and on mobile.

"Notably, the leading banks have transitioned customers online without a reduction in revenue," says Brad Noakes, a BCG partner, the global topic leader for operational excellence in retail banking, and a coauthor of the report. "That's yet another sign that the table stakes for operational and digital excellence are growing."

A copy of Global Retail Banking 2016: Banking on Digital Simplicity can be downloaded at

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 85 offices in 48 countries. For more information, please visit

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