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It is feasible to build a digital bank at substantially lower capex and opex per customer than for traditional banks.
The digital revolution in banking has only just begun. Today we are in phase one, where most traditional banks offer their customers high-quality web and mobile sites/apps. An alternate approach is one where digital becomes not merely an additional feature but a fully integrated mobile experience in which customers use their smartphones or tablets to do everything from opening a new account and making payments to resolving credit-card billing disputes, all without ever setting foot in a physical branch.
More and more consumers around the globe are demanding this. Among the people we surveyed in developed Asian markets, more than 80 percent said they would be willing to shift some of their holdings to a bank that offered a compelling digital-only proposition. For consumers in emerging Asian markets, the number was more than 50 percent. Many types of accounts are in play, with respondents indicating potential shifts of 35 to 45 percent of savings-account deposits, 40 to 50 percent of credit-card balances, and 40 to 45 percent of investment balances, such as those held in mutual funds.1 In the most progressive geographies and customer segments, such as the United Kingdom and Western Europe, there is a potential for 40 percent or more of new deposits to come from digital sales by 2018.2
Potential new deposits from digital sales in UK and Western Europe by 2018
Many financial-technology players are already taking advantage of these opportunities, offering simplified banking services at lower costs or with less hassle or paperwork. Some upstarts are providing entirely new services, such as the US start-up Digit, which allows customers to find small amounts of money they can safely set aside as savings.3
A new model: digital-only banking businesses
While it’s important for banks to digitize their existing businesses, creating a new digital-only banking business can meet an evolving set of customer expectations quickly and effectively. This is especially true in fast-growing emerging markets where customer needs often go unmet by current offerings. The functionality of digital offerings is limited, and consumers frequently highlight low customer service at branches as a key pain point.
So how should banks think about a digital-only offer?
Because banking is a highly regulated industry and a stronghold of conservative corporate culture, there are tremendous internal complexities that need to be addressed. These include the cannibalization risk to existing businesses and the need to foster a different, more agile culture to enable the incubation and growth of an in-house “start-up.” The good news is that our work shows it is feasible to build a new digital bank at substantially lower capex and lower opex per customer than for traditional banks. This is due not only to the absence of physical branches but also to simplified up-front product offerings and more streamlined processes, such as the use of vendor-hosted solutions and selective IT investment, that reduce the need for expensive legacy systems.
- “Digital Banking in Asia: What do consumers really want?,” March 2015, McKinsey.com.
- “Strategic choices for banks in the digital age,” January 2015, McKinsey.com.
- The fight for the customer: McKinsey Global Banking Annual Review 2015, September 2015, McKinsey.com.