OVER THE PAST FEW YEARS, the landscape of various industries like entertainment, media, telecoms, and retail has been dramatically reshaped by technological disruption. The banking sector, particularly retail banking, has also been undergoing significant transformation, albeit more quietly.

Fintech startups and Bigtech giants have been at the forefront of disrupting the banking value chain. By dissecting the traditional retail bank business model, they’ve opened up opportunities for new players to enter the market. While regulatory hurdles have slowed down this disruption to some extent, forward-thinking newcomers are finding ways to adapt and comply with regulations, paving the way for further innovation.

Yet, many traditional financial institutions have been slow to respond to the threat of digital disruption. This inertia has led to adverse effects on their return on equity, manifested in four significant ways. First, through disintermediation, banks are losing their grip on customer relationships as people turn to alternative non-banking channels. Second, fintech startups and bigtech players are cherry-picking the most profitable products of banks and offering them as standalone products at competitive prices, eroding traditional bank revenues. Third, the easy access to real-time information via smartphones has empowered customers to compare banking products effortlessly, turning banking services into commodities. Lastly, with the rise of bigtech and fintech aggregators, banks are losing control over the customer interface, diminishing the value of their brands.

But there’s hope for banks that embrace digital transformation. Those that have successfully undergone a digital makeover are better equipped to withstand the disruptions reshaping the industry.

A robust digital transformation strategy can help banks mitigate the impact of disruption by digitalizing their operations and enhancing the customer experience. But why stop there? Banks can also leverage their digital capabilities to explore new revenue streams beyond their core business areas.

Successful digital transformations rest on four pillars spanning two areas: the core business and digital adjacency growth opportunities. Banks that adopt a holistic approach to digital transformation understand that revitalizing the core business is essential for funding and sustaining broader transformation efforts. Simultaneously, they explore adjacent business opportunities made possible by their digital capabilities.

These four pillars encompass both short-term and long-term actions. The first two pillars focus on digitizing operations and enhancing digital customer experiences, driving transformation within the core business. The remaining pillars shift the focus towards leveraging digital capabilities to expand into new business areas and embrace disruptive models.

At the foundation lies the concept of a “smart organization,” where digitalization is embedded in the corporate culture. By prioritizing digital transformation across all facets of their operations, banks can position themselves to thrive amidst the ongoing wave of digital disruption.

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