Joe Fielding: Manage for Glory or for Cash



To prepare for the future, retail banks must abandon the all-of-the-above approach to strategy. Instead, they should make bigger, bolder investments, with the goal of becoming a digital scale insurgent. Joe Fielding, a partner with Bain's Financial Services practice, discusses how banks can build strength in four areas to evolve their strategic models for the digital age.

Read the Bain Brief: Retail Banks—Manage for Glory or Cash?

Read the transcript below.

JOE FIELDING: Retail banks are at a critical inflection point where they must make fewer strategic hedges and bigger, bolder investments to be ready for the future. An all-of-the-above approach to strategy—a proliferation of products, platforms and equity investments—is not going to work in the long run. It fundamentally doesn't allow you to make the right tradeoffs—investments in technology, digital, data and design—that are necessary to achieve full potential.

Realistic scenarios for the next five to 10 years range from contained disruption to full substitution by technology competitors. And we've seen that play out with competitors like Ant Financial in markets like China. Each market will be different, depending on the level of regulatory intervention and competitor ambition, but what we do know is that profit pools are going to be shifting, with traditional banking profit pools diminishing. And there are new profit pools emerging in areas like advice, acquisitions, technology, data and servicing. Those profit pools will have an embedded digital premium in them. And they can only be accessed by the most highly evolved banking models. Those highly evolved banking models we're calling the "digital-scale insurgents," and they're built on a foundation of strength in a couple different areas. And we'll describe those.

The question is, how do you choose what your path should be? Now, understanding the scenario that's going to play out in your core market is foundational, but we've constructed a future readiness index with four components. The first component is customer experience: understanding the base of loyalty of your customers. The second is cost-income ratio, which is a measure of your ability to invest in your future. Third is channel mix: how digital-ready your customers are to go with you on that journey. And the fourth is a measure of agility, which is based on the cycle of app releases. When you put that composite index together, what you find is compelling: The most-evolved banking models have the highest retail banking profit growth over the last couple of years. And it's a clear indication that banks who are most ready for the future are going to be end-game winners. Not every bank can be an end-game winner, but those who make the right strategic choices can maximize their probability of getting there.

Read the Bain Brief: Retail Banks—Manage for Glory or Cash?