The Global Financial Crisis (GFC) is long past, but another crisis of sorts is still staring banks square in the eye. This one is, to a large extent, the culmination of several powerful trends, including: rising regulatory pressures which are compressing margins; evolving customer expectations and declining branch traffic; and stiff competition from non-traditional competitors. All these factors are manifesting themselves into substandard return on equity (ROE), which still hasn’t returned to pre-GFC levels.
It’s a potentially scary reality for banking executives, who clearly understand that better ROE is a relatively simple formula: increase top line revenue through new and better products and services, while controlling and reducing the costs to serve.
Unfortunately, that simple formula is not so simple to achieve. But PwC’s George Hodges, Banking FinTech lead, and Justin O’Connor, Digital Banking lead, both agree there’s really only one way forward, and that’s through a digital transformation.
Pursuing a digital transformation is the critical path for banks to boost ROE
The centerpiece of this digital transformation is really a mindset shift, one that puts the emphasis on a more holistic view of customer financial health. Thus it’s critical for bankers to rethink how they engage with customers at every interaction, from marketing and customer acquisition through on-boarding, product setup, and payments and transactions. The digital bank of the future must have financial health at the center of the customer relationship.
Accepting this reality is the first step. After that, the next logical question becomes: How should banks respond? This will depend on an array of factors, including the type of financial institution, its customer profile and strategy, and the level of transformation required. For most mid-market banks, it will be necessary to extend the digital ecosystem, while the most ambitious and largest institutions (with the greatest budget) may endeavor to become a digital native.
Whatever the case, banks must address three key issues before starting down the right path:
Financial Services Advisory Leader, PwC US
Banking FinTech lead, PwC US