Banking Isn't Doing Just Fine. It's Time To Worry.
Even with outrageous payment revenues bleeding society dry, banks' future is in peril.
Artwork of the day: Wheatfield under Thunderclouds, Vincent van GoghJuly 1890 - 1890
In Auvers, Vincent van Gogh painted a large number of landscapes with wheatfields, all on unusual, elongated canvases (50 x 100 cm). He wrote to his brother Theo about two of these works: “They depict vast, distended wheatfields under angry skies, and I deliberately tried to express sadness and extreme loneliness in them.” But these pictures also had a positive side: “I am almost certain that these canvases illustrate what I cannot express in words, that is, how healthy and reassuring I find the countryside.”
Do you think banking is doing just fine, and there’s no need to worry? I have news for you; it’s time to worry. I see nothing but Van Gogh’s “angry skies” before us, with many banks “sad and lonely.”
This week, we discuss why the outlook for most banks isn’t good despite years of warnings that they must digitally transform themselves.
Except for a few large sophisticated digital incumbents, most banks' digital transformations are, at best, “skin deep” with innovation programs that don’t even try to keep up.
AI is now upon us and is simply expanding the digital divide between the digital haves and have-nots, leading to buyouts and consolidation within the banking sector.
This week’s stories show how this megatrend will play out:
First, we look at how banks are bleeding society dry with cash transfer costs that comprise 35% of banking’s global revenue! A tax on all of society that is giving birth to CBDC and other cheaper payment systems.
So, if you ask why banks can’t innovate, part of the answer is sloth. Banks could always fall back on rich payment revenues extracted from society. Why bother innovating when you’ve got a supply of guaranteed money?
The problem is that bank clients won’t continue with this scenario forever.
In the next story, we see how 70% of bank clients demand alternative payments that are cheaper and faster, yet banks still don’t respond. They are deaf to their clients’ demands.
In our “coup de grace” story, we see how banks are so slow at innovating that it is estimated that 30 to 50% of retail banks in the US market will be closed by 2030! This is stunning and shows how high a price most banks will pay for failing to innovate.
As if this isn’t stunning enough, our final article shows how banks will have to make AI part of their new business strategy and not just see it as a means to reduce back-office costs. Something most are loath to do.
Think banking is doing just fine? Time to reconsider.
Where Is The Money In AI? Focus on Core Business Functions
The most important question in tech right now is where is the money in AI? BCG says that the money is in"core business functions."
This result may be a surprise as most still see AI as delegated to support roles and automating low-level tasks.
While this can be profitable, the real money maker is in reshaping core business processes and inventing new revenue streams. Something banks, in particular, loathe to do.
This means focusing your AI teams not just on picking up small changes with efficiency gains but going for big bucks with AI central to new business strategies.
👊STRAIGHT TALK👊
🔹Companies in BCG's survey derive 62% of the value they obtain from AI and generative AI in core business functions:
➤Operations (23%),
➤Sales and marketing (20%),
➤R&D (13%).
🔹 Support functions generate 38% of the value:
➤Customer service (12%),
➤IT (7%,) and
➤Procurement (7%).
👊STRAIGHT TALK👊
BCG nails it with what successful companies are doing better than their peers:
They focus on the core business processes as well as support functions.
They are more ambitious. Leaders’ expectations for revenue growth from AI by 2027 are 60% higher than those of other companies, and they expect to reduce costs by almost 50% more.
They invest strategically in a few high-priority opportunities to scale and maximize AI’s value.
They integrate AI in efforts both to lower costs and to generate revenue. Almost 45% of leaders integrate AI in their cost transformation efforts across functions (compared with only 10% of nonleaders).
They direct their efforts more toward people and processes than toward technology and algorithms. (Please see my book Innovation Lab Excellence where I repeatedly say: "Innovation is about people not technology.")
They have moved quickly to focus on GenAI. So much for "fast-follower" strategy!
Please restack!
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