How do retail banks work

How digitally do Europe's retail banks work?

Why it pays to get involved digitally

The customer loyalty measurable with the Net Promoter Score (NPS) is 21 percent of the digital pioneers among traditional banks, well above that of the competition. Pure online banks do even better and can convince their customers, among other things, with low fees.

The workforce also rates those banks that are pioneers in the field of digitization much more positively. This applies to the willingness to recommend as an employer, as well as to the assessment of the future prospects of the company from the point of view of the employees.

Last but not least, the owners benefit. With an average return on equity of 8.7 percent, the top-ranked traditional credit institutions are 2.5 percentage points above the average of the competition. In addition, their cost-income ratio is significantly lower.

The authors of the study summarize: A comprehensive digital strategy makes it possible to increase the level of automation in a bank without the customer experience suffering. On the contrary: faster and easier interactions make it even better. Associated with this is a sustainable cost reduction.

What makes a successful digital strategy?

The experts of the study "How Digital Done Right Pays Off for Retail Banks" have summarized the lighthouse examples from the survey in seven elements - central points which, according to the authors, create the differences between digital pioneers and laggards:

  • Strategy, goals and roadmap
    Successful banks usually go two ways in implementing their strategy. On the one hand, they digitize their existing business and regularly expand it with digital innovations. On the other hand, they also build new business models away from their core.
  • Product portfolio
    Digital pioneers rely either on a reduced, standardized product portfolio or on a broader, but then modular, range of services tailored to the needs of the respective customers.
  • Customer experience
    Shifting sales to digital channels is successful if banks systematically digitize all contact points along the customer journey. If more than 80 percent of the offer is digitized, almost three quarters of sales are made via digital channels. There is still a significant need to catch up, especially for Swiss banks.
  • Modern channels
    All access channels of the top banks in benchmarking are extremely user-friendly. They correspond to what the customer expects today and is used to from other digital companies. The leading credit institutions have managed to migrate their customers into the digital world - initially with gentle methods such as advertising campaigns, followed by tougher measures such as higher prices for services in the branches.
  • Customer loyalty system
    Digital pioneers regularly record the feedback from their customers down to the level of individual interactions. On this basis, they systematically and continuously improve their processes and offers.
  • Operating model
    Leading banks are breaking the silo thinking and aligning their organization consistently with the customer journey. Cross-departmental agile teams are just as indispensable as talent management, through which the required digital expertise can be built up and further developed.
  • Technology and data
    Many traditional banks are struggling with an inflexible, outdated IT architecture. By decoupling the systems used and introducing agile working methods, speed and flexibility can be increased significantly. There are also deficits in many places when it comes to the use of data. Ensuring their availability and quality is a critical first step.

The authors of the study believe that these seven elements are crucial if latecomers want to successfully catch up with the competition.

The market is digital - and increasingly digital

Retail banks have every opportunity to benefit from digitization. The Bain experts are even convinced to an enormous extent. Certainly a good idea for retail banks to put their digitization strategy to the test and compare it with the recipes for success of the competition.

Especially since the competition is not only active in the traditional banks' own ranks. New providers "from outside", who have always been on the move with a digital DNA, are arming themselves vigorously these days. For example, Google with Google Plex - an initiative that turns Google into a bank without Big Tech having to be a bank itself. Or Klarna, the international giant FinTech with a banking license, which now also wants to flex its muscles with account offers and cards. These and other providers occupy the same terrain on which traditional banks and their customers are at home. Also in the game is the growing number of challenger banks, which are also about to divide Europe among themselves.

Those who can read and interpret customers, markets and the signs of the times have an advantage

There is still room for many, for new providers and also for traditional banks. Only for non-digitized or very weakly digitized competitors is the air likely to become increasingly thin. The exclusive focus on internal processes can optimize costs, but should not open the way to success. The visible and tangible effects of digitization and innovation strategies for customers must also be in the foreground.

Customers have long since got used to digital convenience. And more and more digital convenience is constantly being conceived, developed and offered from all sides. Countering this wave with recipes and processes from the last century should prove to be without a chance in the medium term.