This McKinsey article highlights some challenges and opportunities with digital transformation in the banking sector. One of the most disturbing findings in this article is that “nearly 50 percent of global banks say that their latest digital investments are failing to generate returns greater than the costs of capital.” We have had a number of conversations with our clients around their digital investments and the disappointing returns that they are seeing. In a recent chat with one of our bank clients, they indicated that business casing a digital client experience must drive benefits other than paper and postage suppression because “previous efforts didn’t deliver the benefits”. We believe that it is essential to implement “best practice” digital to ensure that the benefits are realized. Investing in digital for digital’s sake will likely yield disappointing results. The other key finding is that as you progress across the digital bridge, best practice banks “consistently harvest the idle capacity that results from ongoing digitization—and fund new initiatives with the savings”. The fact that so many digital initiatives have such compelling savings is a huge opportunity and one that the winners will capture and re-invest. One great example of this is the bank cited in the article; “within eight weeks, it signed up two million customers for eStatements, resulting in a 45 percent reduction in paper-statement spending”. Applying a paper/postage suppression rule of thumb, this would drive cost reduction in the range of $20M annually every year in the future – a pretty powerful opportunity. Finally, we believe one of the most important findings is that digital-leading banks overcome a common challenge; “Only 16 percent of banking executives consider productivity and cost reduction to be high priorities for their digital strategies.” Of course, it makes sense to digitize the client experience but as McKinsey clearly states, don’t ignore the tremendous opportunity associated with digitizing the back office as well as the front office.

Tags: Digital, Industry