Following the 2008 global financial crisis, banks have made positive strides in stabilizing their financials, but another macro economic headwind in technology lies ahead. Currently, the top banks are dramatically leading their rivals as retail banking faces emerging disruptive threats to traditional business models, a Boston Consulting report noted. As a cashless society approaches, bank customers don’t want digital services mandated by the bank, but rather want to play a role in determining the preferred mix of digital and human interaction to accomplish their banking goals. While progress has been made, the challenges facing banks will nonetheless require a bionic transformation, the report says.

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Bionic transformation

Bionic transformation: The integration of humans with technology is the next step

While mom and pop retail banking may be the antonym of “sexy” in the Wall Street bank thesaurus, retail banking nonetheless represents 45% of bank revenues. Even for the largest banks, retail deposits are a critical source of capital used to meet regulatory needs across the panoply of revenue streams.

“Customers have made it clear they want choice in how to engage with their bank and that they expect service to be consistent, streamlined and engaging no matter what channel they prefer,” the report, titled “Accelerating Bionic Transformation,” observed.

The divide among customers couldn’t be more acute, with 43% wanting a digital only experience – eliminating those pesky humans – while nearly equal that amount want a combination of experiences.

“Banks need to fuse digital functionality and personalized, human interaction,” the report opined, pointing to a geographical as well as demographic divide among banking customers.

In the Netherlands, among a handful of European nations at the forefront of embracing digital cash, respondents overwhelmingly want a digital only experience. That said, providing a one size fits all approach to any geographic region limits the customer’s ability to choose their interaction type.

Bionic transformation: Bank growth is expected to take place in emerging markets

Geographic region and technical acceptance are among several key factors in building a roadmap for the future. This is particularly true since much of the forthcoming middle-class growth is not going to take place in developed nations in North America or Europe, but rather in the developing world.

The retail bank customer of tomorrow is not only going to be more particular about their digital interaction, favoring the largest banks that can master technology, but there is also going to be a geographic differential that will favor global banks.

Boston Consulting estimates that nearly 75% of banking growth is likely to be found in Latin America, the Middle East, Africa, Eastern Europe and the Asia-Pacific region. In these countries, where Boston Consulting notes discretionary incomes are rising along with GDP growth, the majority, 53%, want a combination of human and technical choices in how they interact with their bank.

This could create an opportunity for the global banks, which have significant advantages over their smaller rivals, as a notable performance gap is widening.

Since 2015, the performance gap between top-quartile banks and the rest of the field has widened, with the global banks extending “their already sizable 53% net operating profit lead over the median performer by an additional 3%.”

Even the global banks, however, will need to do more. All retail banks need to make “deeper, bolder changes or profitability and competitiveness will suffer.”

Overall growth forecasts point to tepid market conditions through 2020 as headwinds of “historically low interest rates, sluggish GDP gains and cautious spending appetites” weigh on performance.

To facilitate change, a “bionic transformation” must take place that includes reshaping the distribution model, finding value in personalization and operating with a mindset towards technical integration.