By moving into ecosystems beyond the traditional core, banks are able to tap their existing client base and operational capabilities, strengthen engagement, and capture data that will provide a more complete view of customers’ needs. The boost could give executives more flexibility to pursue acquisitions or make other strategic moves. Subscribed to {PRACTICE_NAME} email alerts. We’ve found that most large institutions already have some initiatives underway that involve pursuing one or more of these six growth strategies. If you would like information about this content we will be happy to work with you. While investing in innovation was the fourth … Banks considering a factory plan, for example, should have enough tech talent (particularly around APIs) to be able to maintain appropriate levels of security while serving the given product or service to third parties. Globally, financial-services revenues have grown 4 percent annually over the past ten years (thanks largely to growth in emerging markets), and fintech start-ups and large tech companies have so far captured only tiny slivers of market share. Rockefeller Capital Management will buy Whitnell & Co., a business Associated bought in 2017 that manages $1.4 billion of assets. What governance structures should be established, and what organizational approaches employed? Building Your Growth Strategy Around the Banking Relationship Winning banks will differentiate their customer experiences through personalization in 2021. RoE figures based on analysis by McKinsey’s Financial Services Practice. Most banks have a rich set of exclusive information on their customers (key demographic details, where they live, their lifestyle preferences). Large banks—like many incumbents—have been inundated with new technologies and business opportunities, leaving them confused about where to focus and dissipating their resources. Taking a page from some of the larger digital businesses, banks can offer a curated... 3. Banks should consider this option if.... breadth of choice or price comparisons are important to customers. But its growth is expected to slow over the next two years, making for a gloomy earnings outlook unless vaccine distributions and the economic recovery are relatively swift. The bottom line on digital banking and the branch. To provide a structure for navigating this chaos, and to galvanize the shift to bolder thinking, we’ve identified six opportunities for banks to fuel future growth. Sales effectiveness is not just a function of knowledge, but also of discipline and coaching. Ideabank and ING, for example, have extended into banking adjacencies (see middle ring in exhibit) by providing services like accounts-receivable management, factoring, accounting, and cash-flow analysis to small and medium enterprise (SME) customers. We'll email you when new articles are published on this topic. See also Commonwealth Bank, Investorville Case Study, 2013. Unleash their potential. Global Hemorrhoids Ointment Market 2020 – Business Strategies, Product Sales and Growth Rate, Assessment to 2025; Global Shared Power Bank Market 2020 – Business Strategies, Product Sales and Growth Rate, Assessment to 2025; Global Online Education Platform Market 2020 – Business Strategies, Product Sales and Growth … Q10. The ‘ABC Bank’ has formulated its own defense strategies besides the government limitations and restrictions in the country. Jeanne Pinder Sep 26, 2019 Digital transformation’s top 10: The impact factors that matter As new fiscal years begin and the Growth strategies Banks can’t ride fee income gravy train much longer Noninterest income has bolstered profits this year. Please click "Accept" to help us improve its usefulness with additional cookies. Acquiring Boston Private could put the parent company of Silicon Valley Bank years ahead of schedule in catering to the investment needs of high-tech and biomedical clients, whose industries have thrived during the pandemic. Bank of America Corporation’s generic strategy for competitive advantage (Porter’s model), intensive growth strategies (Ansoff Matrix), and business models are designed to ensure that the financial services operations effectively deliver value to customers while maintaining the company’s market share. Highly satisfied customers are two and a half times more likely to open new accounts/products with their existing bank than those who … Banks should consider this option if.... they have significant market share in financial products that are integral to a larger buying process. Often referred … The California company, which focuses on technology companies and entrepreneurs, will make a big push into wealth management as part of the proposed acquisition. Select topics and stay current with our latest insights. They’ve been overly cautious, playing defense, with me-too digital initiatives primarily designed to counter moves by actual or potential disruptors. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Press enter to select and open the results on a new page. Please use UP and DOWN arrow keys to review autocomplete results. ), the expertise to scale wins, and the management discipline to kill off poor performers. The National Credit Union Administration may get a new leader, several institutions could seek to expand their fields of membership, and a pot banking fight may reemerge. 1. This kind of helpful, concierge-style service can reduce the risk of disintermediation. What’s more, data monetization seems to correlate with industry-leading performance. Increase Investment in Innovation. Other banks are partnering with care providers and health insurers to provide a consolidated billing platform that makes it easier for consumers to pay for medical expenses. Peter Weill and Stephanie L. Woerner, “Thriving in an Increasingly Digital Ecosystem,”. Banks can grow by engaging with consumers at other stages of their decision journey. In the evolving digital era, many new opportunities to offer services like this are emerging. RoE figures based on analysis by McKinsey’s Financial Services Practice. But digital technology and big data/analytics are still poised to shake up the financial-services industry. Several of Canada’s biggest banks have partnered with Toronto-based SecureKey in a system that allows individuals to use their bank credentials to access online services from the federal government. 2. Which unconventional growth opportunities represent a good fit with current resources and competitive position? A headlong dash toward developing “all” these capabilities isn’t the answer. That’s because many small and nontraditional institutions lack core banking products, infrastructure, capital assets, or even banking licenses, and don’t have the reach or resources to acquire them. The banks just use the data they already have to verify their customers’ identities, but then provide it as a secure  capability at a truly national scale and gain access to new potential customers. While growth strategies are usually considered a means to overhaul competitors, they may also be seen as a defence mechanism. Chief Strategy Officer at CenterState Bank, Chris Nichols is an active bank investor, entrepreneur and lover of quantified banking. Despite the headlines about digital disruption in financial services, big banks are actually holding their own. In our experience, the most effective route is to develop a clear view of which capabilities can deliver the most value quickly and power a broader digital transformation. Something went wrong. We use cookies essential for this site to function well. In a letter to credit unions, NCUA urged federally chartered shops to expand their fields of membership to underserved areas, regardless of geography, in order to boost financial inclusion in the wake of the pandemic. ING, for example, has partnered with US-based fintech start-up Kabbage to serve SME customers in Europe. That said, most such initiatives are small and typically need to be scaled up to take full advantage of opportunities large banks face. Grow beyond your core into relevant ecosystems. Subscribe. As a start-up, Kabbage had a distinctive new capability but lacked capital and customer relationships. Engaging across buying journeys can allow banks in such a position to gain access to a larger pool of potential revenue and enrich the overall relationship with their customers. New Products: One of the most underutilized tactics is to add new products to your existing customer base. The online banking market is expected to reach $31.81 billion by 2027 . Mortgages (tied to home buying), auto finance (tied to car buying), and credit cards (tied to taxi/ride-sharing trips and restaurant visits) are examples of such products. A commercial bank’s performance can be evaluated along the dimensions of deposit mobilization, quality of lending, capital adequacy analysis, liquidity, earnings, and loan growth. Global Banking delivers solid and recurring profitability. And they’re certainly motivated. Five strategies for growing revenue. Attack is the best form of defence, and growth strategies may help banks to remain competitive in a fast-moving and rapidly-changing financial services landscape. In the six months after the app’s release, customers searched more than a million properties, and the bank estimated the project’s return on investment at more than 100 percent.2 Create a financial supermarket. But large institutions can create significant value by leveraging back-end assets to create and provide products or services to smaller banks and other businesses. our use of cookies, and tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. As we see it, many banks haven’t set their sights nearly high enough in response to disruptive attackers. By employing digital channels or novel business models, incumbent banks can enter new geographies or market segments that would be prohibitively expensive targets using traditional approaches. The switch to Thomas Cangemi from longtime CEO Joseph Ficalora could foreshadow a push to curtail the company’s reliance on multifamily lending and the pursuit of a bank acquisition that lowers funding costs. CBA created an augmented-reality app that allows users to point their smartphone’s camera at a property and instantly see its current price and sales history. Please email us at: McKinsey_Website_Accessibility@mckinsey.com. Most big banks have the tools and advantages to push the boundaries of their existing business models. See the digital banking industry trends of 2021. This includes discussion of market penetration, market development, product development and diversification together with evaluation of such growth strategies. The combined institution will hold roughly $30 million in assets and serve about 4,000 members. Never miss an insight. Banks should consider this option if.... they want to enter new markets or segments without the need to invest in the physical infrastructure that would otherwise make such moves prohibitively expensive. Learn about A supermarket approach can allow banks without a strong position in such areas to grow in these segments as a complement to their current offerings. The true value of smart-branches lies in their … Channel optimization. The trick is to make sure your risk/reward ratio is in your favor. The system works in much the same way as websites that allow users to log in using their Facebook account—except in this case, Canadian government agencies provide access to online services when visitors enter their bank credentials. Investors believe fintech start-ups will become a significant force in the future, valuing those in the US at $120 billion, or 7 percent of the total equity of US banks. Bank stocks have climbed because of expectations that the change of power in Washington will hasten vaccine distribution and speed the economic recovery. Building Retail Channel Diversity. Speculation is swirling that the Boston company will go on a buying spree after raising $1.8 billion, though some investors are advising caution. The first is for a bank to use its internal data more effectively for its own operations by adding new analytics capabilities. In 2019, it’s become the norm for … By attending only to the bank-related part of the overall journey, banks leave considerable value on the table. There is no one-size-fits-all answer. The opportunity is compelling. The Ansoff Matrix, also called the Product/Market Expansion Grid, is a tool used by firms to analyze and plan their strategies for growth Sustainable Growth Rate The sustainable growth rate is the rate of growth that a company can expect to see in the long term. Another is to create new offerings, such as reports or benchmark analytics, based on bank data. To begin, banks should think hard about a series of questions: No matter which opportunities banks decide to pursue, they will need to commit to—and invest in—new digital capabilities in areas like design, innovation, data and analytics, personalization, and digital marketing. When used responsibly, with respect for regulatory constraints and privacy concerns, this bank data can be analyzed for insights valuable to companies in industries outside of financial services, such as telecom, retail, consumer goods, or automotive. Burger Joe's is a local fast-casual restaurant with only one location that is looking to grow their business. It refers the nature and direction of the economy in which a firm … The app also provides a mortgage calculator and other financial tools, plus the option to connect with local realtors. How should banks decide which unconventional growth opportunities to pursue? There are multiple ways to monetize data. Kabbage’s easy-to-use interface and novel risk-management algorithms allow it to deliver decisions on loan applications in a matter of minutes. Existing efforts can provide important information about which opportunities are promising and what’s required for success. Wipfli CPAs and Consultants: Survive and Thrive: Deposit Growth Strategies for 2010 and Beyond ; The Free Dictionary: Compensating Balances ; The Business Journal of Milwaukee: Bank Deposits Increrase as Customers Seek Safety This proven software’s comprehensive features empower financial institutions to grow their loan portfolio, increase income, and reduce risk. In addition to the financial fallout, COVID-19 is reshaping the global banking industry on a number of dimensions, ushering in a new competitive landscape, stifling growth in some traditional product areas, prompting a new wave of innovation, recasting the role of branches, and of course, accelerating digitization in almost every sphere of banking … And Bank Bazaar in India, a pure-play financial supermarket with no proprietary offerings of its own, offers a full set of services from more than 50 institutions to more than 23 million customers. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Digital upends old models. Use minimal essential For example, a customer with a checking account would be encouraged to consider a personal line of credit, a home-improvement loan, or a bank credit card (see inner circle of exhibit, labeled Core). Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Six digital growth strategies for banks 1. The fintech start-up Moven built a pioneering mobile money-management app and is now partnering with financial institutions to provide this service to retail customers. In the past, that approach was about introducing other banking products. What capabilities should be in place to go after these opportunities. If you would like information about this content we will be happy to work with you. So how can bank executives design and build an adaptive operating model that will sustain growth and profitability? This tension makes CEO Bob Rivers one of our community bankers to watch in 2021. To build privileged relationships with customers, some financial supermarkets rely on recommendation engines, which use transaction, merchant, and customer data generated from the platform to provide personalized suggestions and offers. CARM-Pro™ debt collection and recovery technology by IBS is the sought-after solution for banks and credit unions seeking better banking strategies for growth. Discussions to combine Penobscot County Federal Credit Union and The County FCU began in June 2019 but the deal was not completed until the end of 2020. Banks should consider this option if.... they possess a significant back-end capability that others don’t have and the ability to extend it into other environments securely. The goal of channel optimization is to assess the various … A. Many banks and fintechs are locked in a battle over the customer-facing front end. The key growth strategies of online banking market players are merger and acquisition, product launch, and joint-venture. Building a financial supermarket allows a bank to focus on the high-return side of the industry: average annual return on equity (RoE) for providing credit from bank balance sheets is only 6 percent, while RoE for product origination/sales is 22 percent.1 In addition to opening up new revenue streams, this approach can also be a useful way for to banks to collect new data. Banks have long relied on making customers aware of relevant products as a path to growth. Flip the odds. RELATED TAGS . Growth Strategies: Defined. Economic Factors The ‘ABC Bank’ generally seeks to compete in the relatively stable economics with the strong growth potential. Branches are vital to attracting new customers and cross-selling to existing ones, but they're also expensive. Most transformations fail. For most consumers, working with a bank is just a means to an end: ensuring a secure retirement, growing a business, or buying a home, for example. A narrow focus on core adjacencies ignores the broader role a bank can play on behalf of its customers. The banking industry plays a huge role in the global economy and is undergoing a huge technological shift. Bank-issued credit cards, for example, have access to data on both consumers and merchants, which can be sold to retailers. Arkadi Kuhlmann and Bruce Philp, The Orange Code: How ING Direct succeeded by being a rebel with a cause, Wiley, 2008. Some banks have even gone farther and moved into nonbanking adjacencies (see outer ring in exhibit). Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. This approach is useful for exploring market opportunities, but it requires sufficient digital skills (design, customer experience, analytics, etc. People create and sustain change. The important thing is to get going, to act with a sense of urgency—like an attacker seeking growth, not merely a defender hoping to hold onto a legacy position. We strive to provide individuals with disabilities equal access to our website. Here are the milestones and missteps, the wonderful and weird, the best and worst, during a year that will be a powerful force in shaping the future of the industry, With share prices rising, banks have more growth options, Credit union regulator encourages underserved areas for federal charters, Maine credit unions wrap up 18-month merger process, Small credit unions in Muncie, Ind., plan merger, SVB chooses to buy rather than build in wealth management, Associated to sell wealth management unit, SVB to pay $900 million for Boston Private, How the new year could shake up the credit union industry, IPO done, expectations mount for Eastern Bankshares, Diversification, M&A may lie ahead for New York Community under new chief. Use paid search marketing to your advantage. The former is often the case with investment products, for example, and the latter for property-and-casualty insurance. Companies: Our Global Banking business works with virtually every company in the S&P 500. Leading banks are making inroads in five areas that allow them to build models that suit their strategies-in-the-making and can flex as new priorities emerge (see Figure 3).
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