Ideas and Insights

More from Financial Institutions

  • The 2014 Retail Banking Radar: Cold Front Dissipating

    The 2014 Retail Banking Radar: Cold Front Dissipating

    As Europe's economic recovery begins, retail banks' success will require smart strategies in distribution, digitization, and cost.


  • Digital Failure? Try This Diagnostic Checklist

    Digital Failure? Try This Diagnostic Checklist

    Bank Systems & Technology, 3 June 2014

    This checklist can help you understand—and fix—the causes of failure in digital projects.


  • Expect Revolution, Not Evolution, in Securities and Financial Services

    Expect Revolution, Not Evolution, in Securities and Financial Services

    The “plumbers” of the European capital markets industry must learn to do a lot more for their clients—or a lot less.

    Abstract | More | PDF

    Securities services firms are often called the “plumbers” of capital markets because they provide essential back-off ice services that keep capital markets working. Their clients, financial institutions, naturally want this plumbing to be cheaper because they face severe margin pressures. While this cost-based tug of war between securities and financial institutions can lead to problems, there are also plenty of opportunities—from outsourcing, expanding beyond borders, and invading new territories to specialization, integration, and “co-opetition.”

    Keep in mind that change is happening fast. The structure of European securities services has altered dramatically and rapidly over the past decade, and will alter even more over the next half-decade. Expect revolution, not evolution. How financial institutions and securities services firms respond to the changing environment could mean the difference between survival and extinction.

  • Banking on Our Future: Framing a Vision for the Australian Banking Industry

    Banking on Our Future: Framing a Vision for the Australian Banking Industry

    Our economic future will be shaped by five double-edged mega trends. The banking industry can take a lead in determining how it plays out.

    Abstract | More | PDF

    The Australian banking industry has performed remarkably well over the past decade. Demand for the core economic functions has increased steadily, and banks have stepped up to satisfy a lion’s share of this demand (more so than in many comparable markets). Additionally, the industry has managed to strike an enviable balance between the three competing objectives—providing returns to shareholders, investing in customer protection and stability, and delivering value to customers—a necessity if the system is to grow and support a vibrant economy.

    Rather than relying on expanding margins, the industry has created economic surplus by successfully meeting growing market demand. Further, banks have controlled their operating expenses, reinvested in the business, and redeployed the increased surplus towards shareholders, including a significant part of the Australian public who directly or indirectly hold bank shares. Almost a third of investment spending was directed towards risk and compliance projects and a large part of the remaining investments was applied to enhancing the proposition to the customer.

    However, an objective analysis of the industry does also raise a number of questions that suggest the need to challenge the status quo and embrace a new vision. Is the current return on equity sustainable or likely to face downward pressure on average? Are current measures of customer satisfaction truly representative of how customers perceive and choose their banks? Can greater economic surplus be created through bolder, industry-wide productivity initiatives? And are all core sectors of the future Australian economy benefiting from an increased availability of funding?

    To articulate a fresh vision, we need to first look ahead and imagine the future Australian economy. Our economic future will be shaped by five mega trends—a maturing population, emerging Asia, the rising impact of digitisation, risk averse and expensive global capital, and scarce natural resources. Crucially, these trends are double-edged and pose both opportunities and threats to the country’s economic success. Thus it is possible to articulate an optimistic and pessimistic outlook for the Australian economy with equal conviction.

    We believe the banking industry must play a central role in encouraging an optimistic future and should aspire to be the key enabler of the future Australian economy. This vision has four dimensions:

    • Support the unlocking of capital to fuel the future economy
    • Develop and deliver financial solutions to core growth sectors of the economy
    • Facilitate Asian integration through superior insight into the risks and rewards of doing business in Asia
    • Pioneer the charge into the digital economy

    There is much to do for the industry to realise this vision. Individual banks have a significant part to play but cannot succeed alone. As listed, for-profit enterprises themselves, banks will (and should) always behave in a way that is economically rational. Thus, the alignment and support of regulators, policy makers, and even the analyst community will be essential to create the environment in which economically rational choices for banks and the long-term interest of our nation are aligned.

    This paper, developed in dialogue with a panel of global and Australian experts, as well as discussions with senior industry executives, sets out how the banking industry can—and must—help tilt the odds in favour of a bright economic future.

  • The Need for Customer-Centric Digital Innovation

    The Need for Customer-Centric Digital Innovation

    Bank Systems & Technology, 27 May 2014

    Arjun Sethi, A.T. Kearney partner, explains how emerging technologies and trends like geo-location and the Internet of Things are creating new opportunities for banks to satisfy customers’ needs.
    By Arjun Sethi


  • How to Diagnose the Causes of Digital Failure

    How to Diagnose the Causes of Digital Failure

    Banktech, 1 May 2014

    Gordon and Odunuga look into the three main reasons U.S. banks’ digital strategies often remain unfulfilled: organizational misalignment, rigid digital strategy, and a lack of customer-centered design and development.


  • Turning Change to Advantage in the Insurance Industry

    Turning Change to Advantage in the Insurance Industry

    In times of great volatility shrewd players install strategic foresight at the center of their operational choices.

    Abstract | More | PDF | iPad | Kindle

    Countrywide, Blockbuster, Blackberry, Borders, Kodak: just a few of the established companies that overlooked, underestimated, or reacted too late to change. Managing change aggressively begins with naming the things the industry will be talking about in five or 10 years and getting out in front of them—no easy feat, especially for mature industries such as insurance. Change can be subtle and still be enormous, especially if it comes from the external environment. And it can come from anywhere: population trends, the natural environment, social movements, and innovations of every type.

    Senior executives know they can’t control the external operating environment. What they can do is respond to change by understanding and managing the forces behind the individual drivers of volatility. They can, in other words, build strategic foresight as a competitive advantage: players that know how to capitalize on change install strategic foresight at the center of their operational choices.

    While insurance companies are very good at managing risks associated with claims from sudden catastrophic events, their vulnerability is elsewhere. Because of the industry’s relatively slow customer turnover, every insurance executive’s bad dream is a slow bleeding of their customer base as a result of external factors that are understood too late. Getting ahead of such developments requires enlarging the strategic vision.

    This paper takes a look at the trends that are shaping the industry and sheds light on the opportunities that are opening up.

  • How Insurers Can Turn Change to Competitive Advantage

    How Insurers Can Turn Change to Competitive Advantage

    Insurance & Technology, 20 March 2014

    The purpose of innovation is to install foresight into operating decisions, proactively addressing industry trends to give renewed nimbleness to insurers.


  • Connecting the Dots to Cut Costs

    Connecting the Dots to Cut Costs

    Banking Strategies, 3 March 2013

    Banks today need to go beyond traditional cost-cutting methods with an integrated, cross-functional approach across end-to-end value chains.


  • The New Reality of GCC Banking

    The New Reality of GCC Banking

    Following a growth peak, the GCC banking industry is feeling pressure. Understanding what's altering the landscape can help players flourish.

    Abstract | More | PDF | iPad | Kindle


    The Gulf Cooperation Council (GCC) banking industry has seen a flurry of positive headlines over the past few months. Many banks are reporting year-on-year and quarter-on-quarter improvements in growth, revenues, and profits, and there are clear signs this will continue for the foreseeable future. The financial crisis appears to be firmly in the past.

    However, a closer look reveals that the GCC banking market has experienced a fundamental change. The pre-crisis heyday of growth for all GCC countries is gone, leaving behind a more diverse banking landscape. Triggered primarily by macroeconomics, demographics, and regulation, the new landscape is here to stay, and it is having far-reaching consequences on both strategic and operational levels. This paper takes a look at GCC banking performance, examines the factors behind the changes, and explores how banks can tackle this new reality.

  • Cash Displacement: The Final Threshold

    Cash Displacement: The Final Threshold

    Cooperative competition has yet to produce a satisfactory replacement for cash. Perhaps government regulation is the missing catalyst.

    Abstract | More | PDF | iPad | Kindle

    Almost 65 years after the introduction of the first general-purpose credit card, most transactions today are still of the cold, hard variety. Cash is king, and its reign continues despite the hidden costs—as much as 1 percent of gross domestic product (GDP) in a mature economy, according to some experts. Significant advances have been made in the area of noncash payments over the past decade. For example, credit and debit card fraud has been reduced by the introduction of the EMV system. At the same time, the cost of bulk electronic payments has fallen sharply. Cash won't be displaced on a large scale, however, until today's closed-loop systems, where multiple players seek to collect rent for the infrastructure they have built, are replaced by a zero-fee, open-standard ecosystem that allows consumers to use any device in any scenario.

    We believe that government regulation will be required to break down the barriers that cooperative competition has proved unable to overcome. Governments and central banks need to acknowledge the cost of cash to the economy and seek to actively reap the benefits of a cashless society, investing directly and heavily in building national payments infrastructure and platforms, defining standards to ensure harmonization and interoperability, and applying incentives and penalties. Another possibility is a provider-led play, in which an incumbent (for example, a bank or a telecom operator) or disruptive player becomes a dominant force in payments, either regionally or globally.

    Regardless of how the transition plays out, achieving a cashless economy will require stakeholders to adopt a new mind-set, strategy, and business models.

  • How Prepared is Your Bank for Digital Disruption?

    How Prepared is Your Bank for Digital Disruption?

    Banktech, 21 October 2013

    Digital transformation is going to change banks’ relationships with their customers and will require an over-arching strategy for dealing with those changes.


  • Banking in a Digital World

    Banking in a Digital World

    Insights from leading retail banks worldwide highlight the state of play and expected challenges in the digital banking journey.

    Abstract | More | PDF | iPad | Kindle

    Across the globe, banks are exploring ways to convert to a more digital business model. So far, the changes have not been too disruptive, despite aggressive new offerings from non-banks. Besides gradually reducing paper-based interactions, the primary focus has been on enhancing the product suite with value-added services and achieving an integrated channel experience.

    Thus, the focus has clearly been on the outside—the customer-facing side. Very few players have fundamentally changed their internal organizations or governance principles. Most customers still belong to branches, and in the back office the preparation for being the central customer interaction coordinator has been timid. Consolidated IT systems have helped reduce cost but do not cater to fast time-to-market and processing.

    In addition to this mismatch for banks, the pace of change is increasing: New technology-savvy companies are flooding the market with innovative offers for financial services, customers are becoming more confident in using the full range of e-commerce offerings, and even regulators are reshaping long-established procedures to adapt to new concepts. Some regions are more advanced than others, and the timing of change is hard to predict, but banks are well advised in already preparing today.

    Digitization will become more disruptive as value chains break apart, especially around customer interaction, product configuration and transaction processing. Moving forward will require flexible processes, new revenue models armed with new products and services, and sweeping cultural changes—all in sync with the regional environment. Our Digital Banking Readiness Index (DiBRix) can be used to guide this journey.

  • European Retail Banking: Time for a Remake

    European Retail Banking: Time for a Remake

    Return on assets hit a historic low in 2012. Rewriting the script will be the first step toward a rebound.

    Abstract | More | PDF | iPad | Kindle

    Some films do not age well. While there is no doubting their merit, there's something about the setting, or the rhythm, or the dialogs that just doesn't seem to resonate any longer.

    European retail banking is in just such a situation. Not much has changed over the past few decades, with banks largely offering the same types of products and services through the same channels. Today, interest margins are at record lows and spreads are forecast to continue to narrow through at least 2018; the main product areas seem likely to provide little relief. Nearly all of the 50 retail banking practitioners we consulted in 13 key European markets agreed that income from investment products is unlikely to recover its pre-crisis levels. The only area where nearly everyone expects income growth is in core banking products centered on the current account.

    This need not, however, mean the retail banking model is a flop—with a remake, it can maintain its profitability and relevance.

  • Building the Resilient Bank: The Future of Credit

    Building the Resilient Bank: The Future of Credit

    Financial institutions that choose innovation will be best positioned to preserve franchise and profits in the new regulatory environment.

    Abstract | More | PDF | iPad | Kindle

    With a harsh spotlight shone on banking practices, and legislators and regulators forced to act, banking reforms in the United States and Europe, together with the Basel III international regulatory framework, are aimed at increasing resilience by ensuring sufficient capital. In addition, regulators are enforcing behavioral changes in response to evidence that institutions are more focused on short-term profits than on long-term investment or credit risk.

    While it is difficult to predict what will happen next, many of the potential outcomes for banks are unacceptable, and suggest a need for innovation and a reconfiguration of the value chain, at the very least. Five areas in particular should be prioritized:

    • Bolster securitization capabilities
    • Develop fee-based credit management services for well-funded corporations
    • Step up participation in the corporate bond market
    • Carve out a role in non-bank financing, such as crowdfunding
    • Develop bundled offerings in retail banking based on investment banking concepts

    Institutions that embrace the need to change will stand the best chance of emerging as winners.


In the News

Read insights from A.T. Kearney consultants quoted in the media.

Global Leaders

Ettore Pastore
Ettore Pastore
Europe, Middle East, and Africa
Joe Reifel
Joe Reifel
Jungkiu Choi
Jungkiu Choi
Asia Pacific