The Jungle Law - Survival of the Fittest - Are YOU Ready in Current Scenario

Corona Covid 19 needs no introduction anymore, unfortunately; neither does the changing market landscape with its own challenges and threats related to macro conditions both globally as well as domestically across different countries, decreasing gaps between Conventional and Challenging Banks, YOU will need to be different and relevant to the customers, not to grow...but to Survive itself !

Most banking markets around the world have seen limited growth and profitability improvement in recent years. In contrast, despite the recent economic slowdown, including the latest global threat to survival in form of contagious pandemic virus, Banks who were able to digitally transform, adapt and able to offer the convenience to their clients, in these dire times, would obviously all the shots and move ahead, as the Jungle law shall surely prevail otherwise !

Am sharing my thoughts coupled and inspired with extract below from an article I read in Banker Middle East which I believe could be very relevant in the current scheme of things.

Competitive dynamics changing rapidly

Competitive dynamics is changing rapidly across markets — top-end of the market has become much more concentrated, and the challenging banks are eating rapidly into the market-share. Growing pressure on mid-and small-size banks Impact of scale on performance becomes very visible.

Scale clearly matters, and gaps in digital as well as transformation execution capabilities contribute further to this profitability gap. Gaps in scale, digital and foundation capabilities are likely to start a problematic competitive cycle and Customers may accelerate defection to competitors with stronger balances sheets, more convenient and innovative offerings.

Leading indicators and technology trends pointing towards tougher times

Despite the non-supportive macro environment, profitability of those banks who would be able to implement a sustained innovation culture and to a sustained digital transformation thereby leading to greater customer satisfaction and retention, would also be sustained and growth in financial buffers would be imminent.

Decelerating loan and deposit growth, tightening margins, accelerating NPL formation ratio are pointing towards tougher times.

Cost optimisation is necessary, but not enough

Commitment to efficiency and productivity gains

Rigorous cost management, more selective definition of target segments and focusing business models accordingly are necessary for banks.

In addition to traditional cost optimization techniques, cost savings can be also achieved through cross-industry multi-bank efforts such as shared infrastructure, industry-wide utilities, smart outsourcing and strategic distribution partnerships.

Large banks or bank coalitions can position themselves as service providers/utility centers, selling their services to smaller banks, increasing their economies of scale. Another common route to efficiency is partnerships with companies from other industries and large digital and e-commerce platforms. Government partnership, if possible, would be the best option to lead the complementing digitalisation efforts.

Sharper customer segment and experience focus

Smaller players should focus on (sub-) segments which are most attractive and where they are most able to compete and reduce commitments to non-core businesses to reduce organisational complexity and costs.

Identifying a bank’s unique formula for superior client experience given its competitive positioning in the market is key.

Revenue and margin growth

The chosen strategic intent should be supported by action across four essential enablers: value-based digital transformation, better analytics, agile ways working, and right talent and HR strategies.

Regardless of their chosen strategy, firm infra and foundation capabilities such as digital-ready IT, robust capital management and risk processes are key for the banks.

Four essential transformation enablers

Digitize intelligently or die

Digital has the potential to enable stronger growth and lower costs. Digital fuels growth by allowing banks to create new products and propositions and do this much faster.

It also improves customer acquisition and retention by enabling an integrated multi-channel offering that deepens customer engagement, intelligent sales and service processes where RMs can take advantage of advanced analytics tools.

Furthermore, through digitizing and automating many time-consuming manual, non-STP processes they can reduce their reliance on branches, radically transform their CX, and take out a lot of cost.

Using data and analytics to boost performance

With the demand for faster information and decision making higher than ever, a progressive data strategy that effectively collects, integrates and manages data across the large numbers of customer touch-points so that it can be acted on; adopting advanced analytics (big data analytics, AI/ML algorithms) and embedding them into operational workflows is both a key imperative and a low hanging fruit.

Agile ways of working

Leading banks are adopting agile ways of working to tear down functional silos and cut down time to market of new products and services. Many have established digital factories, with the aim of accelerating transformation and eventually spreading the factory’s agile culture back to the larger organisation.

Talent strategy for digital shift

To manage the transition to digital and data driven era, banks need to align recruiting and digital strategy, adapt performance management and recognition processes, rethink career tracks and flatten organisational models. They need to reinvent their talent strategies to attract, train and keep quality digital talent.

Strong infra and foundation capabilities: Digital-ready IT, robust capital, project and risk management

Banks that are serious about digital transformation will need to enhance their enterprise IT landscape along three critical dimensions.

Firstly, banks need to simplify their application and infrastructure architectures and decouple their application landscapes.

Second, banks need to revamp their data management practices and provide a digital-ready data infrastructure.

Third, banks need to adopt continuous delivery and automate their delivery processes to reduce time to market and increase development quality. Value creation targets should be integrated into target agreements for all business unit heads and must be regularly monitored.

Where does all this leave banks?

If you are unable to evolve (for any reason) in order to be relevant, consolidation and mergers may be only part of the answer. Banks need to think in terms of transformation rather tactical measures, have a comprehensive strategy and executive alignment to deal with the issues in front of them and meet the future of the industry.

This means seeking a sustainable business model, embracing a stronger customer focus, and intelligently investing in digital. Banks need to find ways to collaborate within the industry, firstly, to achieve a more efficient operating models, but more importantly, to effectively compete against non-banks that are making inroads into financial services.

At this inflection point for the industry, those willing to be make bold decisions and take decisive action are likely to emerge as winners. It is important to remember that 'in the middle of difficulty lies opportunity’.

Last but not the least - Evolve - to Survive and Grow, otherwise - even dinosaurs got extinct !