Going Digital: The

Banking Transformation
Road Map
The leaders in digital banking are more client-centric,
tech-savvy, and inclusiveand are fundamentally
changing to deliver the best results.

Going Digital: The Banking Transformation Road Map

Most banks today want to become digital banking leadersafter all, thats where the customers
are. And for much of the past decade as digital banking has taken hold, most leading traditional
banks have incorporated strong digital strategies.
So what separates the digital banking leaders from the laggards? A new A.T. Kearney study
on digitization, in conjunction with Efma, seeks the answer and finds three main findings: the
leaders understand the importance of mobile in a digital strategy, they are developing more
agile operating models, and, most notably, they have tackled the need for internal culture shifts
(see sidebar: About the Study).
With top-down implementation, these leaders have set their paths toward becoming more
client-centric, more tech-savvy, and more inclusive. As the market evolves even more rapidly
through the end of the decade, all banks will have to adapt to a disruptive model in people and
ITthe two engines of retail bankingand must fundamentally adapt to deliver the best results.
This paper looks at the trends and the path forward.

The Evolving Digital Journey

Most banks began their digital journey years ago and have clear digital strategies, yet even
those are facing major changes. In particular, as more customers use their mobile phones and
tablets to do their banking, and omni-channel takes hold in financial services, the mobile
experience is becoming a crucial aspect of digital strategy that banks must address.
Secondly, to keep up in this fast-changing market, traditional banks will have to adapt their
operating models. In particular, changes in IT, new products and services development, and
changing expectations for time-to-market will be key factors going forward.
Perhaps the most important step, however, is that banking in the digital age requires a drastic,
profound reset of how banking staff reacts to customer needs. This means thinking customer
first, rather than by channel; as one panelist puts it, Banks think in channels, but customers
don't. It means being conscious that small digital players can gain market share faster and
in a manner that is more disruptive to traditional banks models. It means understanding that
organizational silos pose significant obstacles to creating new solutions for customers. Most
importantly, it means looking inward, changing organizational beliefs and habits to facilitate
clients and drive digital innovation.
A new spirit of bankingled by top executiveswill lead the way to addressing market changes,
becoming more agile, and improving openness in day-to-day business.

About the Study

This is the second edition of a
joint study by A.T. Kearney and
Efma about the digitization of
retail banking across the globe.
The study is based on interviews,
conducted between June and
September 2014, with more than
25 executives in charge of digital
or multichannel in the retail

banking divisions of 22 leading

banks. The study is based on the
general question, How is the
bank implementing its digital
transformation?
The study also included interviews of six CEOs from pureplayer digital banks. An open
questionnaire co-developed by

A.T. Kearney and Efma touched

upon five key themes: strategic
intent and objectives, transformation approach, organization
and governance, success factors
and lessons learned, and the
specificities regarding physical
branches and the insurance
business.

Going Digital: The Banking Transformation Road Map

In our survey, digital banking leaders tell

us that the game is about the race to
build an audience to increase traffic
and drive sales.
1. Mobile Banking Is Changing the Game
The digitization of retail banking is, of course, not a new development. Online solutions and
services have existed since roughly the turn of the century, which has progressively led banking
beyond mere multichannel strategies as Internet access has become ubiquitous and more
heavily used (see figure 1).
In coming years, however, mobile use will become the epicenter of digital banking, as technology
improves (3G, LTE) and smartphones and tablets become even more widespread. More than
half of mobile devices sold today are smartphones, and more than 80 percent will be by 2020.
Eighty-five percent of the executives we interviewed for this study say that mobile is the
cornerstone of their digital strategy going forward, as mobile becomes most customers
first touch point. One executive at a Latin American bank says, This year, transaction volumes
for mobile have overtaken volumes across all the other channels. A European banking
executive reports that their clients have 11 times as many contacts through mobile than
on standard computers.

Figure 1
Most banks are now accelerating their digital strategies

Multichannel
strategy

Number
of digital
banking
clients

Ignite digital
strategy

Tablets are
introduced

Smartphones
are introduced

Accelerate digital
strategy

Smartphones make
up half of the market

Smartphones make
up 80% of the market

New inflection point

2007

2010

2014

2020

Technology

Workstations

Smartphones and
tablets

Internet of Things (watches, glasses)

Clients

Early adopters

Mobile Internet users

Heavily connected users

Source: A.T.Kearney analysis

Going Digital: The Banking Transformation Road Map

The spread of mobile banking is creating what we call new golden rules for retail banks as they
seek to meet customers expectations in banking products and services:
Simplicity. Mobile requires smart, visual, and easy-to-use interfaces and services.
Relationship. The new rule in digital is always connected. A consequence of this is that
banks must cultivate the development of emotional relationships with their customers,
including through social media.
Traffic. Generating web or app traffic is a major concern for digital banking leaders. In our
survey they tell us that the game is about the race to build an audience, or generating traffic
to increase sales.
Speed of innovation. Banks are trying to keep pace with new technologies. For example, the
most recent iOS update from Apple includes a new Apple Pay feature, with potential buy-in
from many banks. Other banks are seeking to develop apps for connected watches, glasses,
and other wearable devices as their use spreads.
2. Banks Are Aspiring to Build Agile Operating Models
Our research highlights three groups of digital approaches, based on their commitment to digital
strategy and their progress on the digital transformation road map (see figure 2). The first, which
includes roughly one quarter of the retail banks we examine, sees digital merely as a project, with
pilots and gradual deployment, and not as a central feature (see figure 3 on page 4). The second,
the advanced group, which includes 42 percent of retail banks in our study, consider digital
a business within their umbrella. The last, including 32 percent of the banks in our study, take what
we call the boosted approach where they have a pure player (such as a subsidiary) inside the
firm and a digital culture from top to bottom.

Figure 2
Most banks want to become digital banking leaders and are deeply engaged in the
transformation to get there
Digital is a core value

High

Digital is a business
Commitment to
digital strategy
Clarity of vision
Digital banking
leadership ambition

Low

Digital is a project

Low

Medium

High

Digital transformation road map progress

Customer experience
Organizational transformation
IT agility
Cultural transformation

Source: A.T.Kearney analysis

Going Digital: The Banking Transformation Road Map

Figure 3
Our survey finds three typical digital approaches

Followers (26%)

Advanced (42%)

Boosted (32%)

Project-by-project basis

Clear, long-term vision and ambition with

client-centric focus and open innovation

Pure digital business model

Cross-functional teams mixing IT,

distribution, and marketing

Pure-player model that accelerates

learning for digital transformation

Digital is a project
Pilots and gradual deployment
Long-term planning

Digital is a business

Digital is a core value

Test-and-learn approach: options tested

in parallel, with big-bang full deployment
Flexible and agile execution, with twiceyearly reviews

Use subsidiaries to accelerate digital

Dissemination of digital in the

company, culture, and innovation
Dedicated lean IT

Abundant internal communication

Source: A.T.Kearney analysis

The advanced and boosted groups demonstrate future trends in digital banking. The advanced
pack shows a structured approach to digital, with an understanding of how branch networks
are evolving in an omnichannel world. These banks use a solution-driven, test-and-learn
approach, with many options tested and close collaboration with other units, such as IT and
marketing. At these firms, the banks mindset is client-first, and there is an understanding
of the need for investment in IT platforms.

Flexibility must become the dominant

gene in the DNA of traditional banks
as they rebuild their operating models
in a digital world.
The boosted approach, based on a pure player model, demonstrates a possible end-game model
and trends. These companies are on the offensive as they seek marketwith new technology
and their associated opportunitieswith the idea that short-term gains will lead to long-term
advantage. They are employing agile teams with fast time-to-marketin the range of six months
on products, services, and upgrades. They are dedicated to cost effectivenesssmall teams,
an entrepreneurial mindset, and dedicated web-enabled IT teams that are partially outsourced.
One executive at a European mobile banking pure player described his firms digital vision:
Fully digital products
Fully paperless
Minimal need for call centers and direct interaction with clients
Lean core banking IT system, with Web banking and CRM enabled by initial design
Highly outsourced IT with strategic partners
Going Digital: The Banking Transformation Road Map

Implementation of digital banking will be anchored by three dimensions: client centricity,

open innovation, and organizational flexibility (see figure 4).
Client centricity. Client centricity has two parts in a digital transformation: a focus on the
customer experience coupled with an in-depth examination of the role of branches. Three
quarters of our respondents say understanding customer experience is essential to implementing digital into their organizations. There are three success factors:
Be attentive and pragmatic. The objective is to move closer to clients expectations and
anticipating them. This requires a change in mindset and practices, with the client becoming
the center of the bank. One European executive says, Everyone in the company thinks client
first. Other practices include watching social networks, maintaining live interaction on those
networks, and developing concept spacesnew offers and services, CEO discussions, or
closer client interactionswhere banks can study customers behaviors.
Be ready and creative. An enhanced client experience will go a long way, so a banks
technology must be leading-edge. As one panelist says, In digital, the banks IT is naked in
front of the client. The ability to capture the full potential of new technologies starts with an
agile IT organization and cross-functional teams studying customer desires.

Figure 4
Seven success factors for digital transformation in banking

Inclusive
digital
teams

75%

Inclusive
digital
culture

35%

45%

Open
innovation
ecosystem
O

60%

Long-term
vision and
short-term
execution

pe

no
vat
io

Agile IT
platform

60%

60%

New
role for
branches

5
in

Internal orientation

C li e

nt

it

Ope
n in
no
va
tio
n
2

ity
tric
n
ce
nt
il e
1
C
Customer
experience
focus

ional flexib
anizat
ility
Org

ional flexib
anizat
ility
Org

External orientation

t
en

ri c

Note: Percentages are respondents who cite this as a key success factor for their company.
Source: A.T.Kearney analysis

Going Digital: The Banking Transformation Road Map

 Rethink the role of branches. Traditional branch networks embody the brand of the bank
as an institution and host an important number of the banking staff. Changing the role of the
branch means changing the habits, beliefs, incentives, and experience of the people who
work in and for branches. The digital shift is a cultural shift, with new skills required to meet
newly digitized customers. What does the future of branches look like? A top executive from
a pure online player sums it up nicely: Delivering high-value advice through true experts. In
this scenario, banks have flagship branches that showcase the brand and are fully integrated
parts of the omnichannel customer journey.
Openness to innovation. Digital teams with a mix of IT and marketingin other words both
internal and external know-howcan help produce concrete innovations that are ready for
client use. Integrating IT and marketing is the essence of the digital age, as it seeks to create an
agile organization that merges client needs with solution delivery to deliver new services as
quickly as possible. A connection between internal know-how and external market realities
leads to more valuable innovations.

Leading traditional banks understand that

open innovation ecosystems are the
genesis of design and delivery in the
digital era.
Open innovation and ecosystems are the genesis of design and delivery in the digital era.
The market is moving fast, and to lead the race to new mobile offerings requires, as one
banking leader in Europe tells us, a highly efficient connection between new technology
releases and partners.
The leading traditional banks are testing leading-edge technologies at early stagessometimes
in labs close to Silicon Valleys digital ecosystem of ideas, start-ups, and peopleto understand
their impact and promise for digital banking. They also understand that it is crucial to transform
innovations efficiently into real offers for clients. As new start-ups become an unavoidable
feature of the marketso-called fin-techs proposing more value-added servicescreating
connections with these players (either with collaborations or acquisitions) will be necessary,
as will close partnerships with the major players leading the digital era revolution.
Organizational flexibility. Technological and organizational agility is crucial for banks. An agile
IT platform is central to the digitization of banking operating models. The proliferation of new
technologies and the faster time-to-market call for a fundamentally flexible IT platform that
is able to integrate external cloud services. IT organizations need to be segregated by seamlessly integrating the front-end IT into the business and industrializing the back end (see figure 5
on page 7). At a deeper level, it means a cultural change to embrace new technology testing
and integration, and to adopt a customer solutions-driven mind set.
Technological capabilities are becoming a main differentiator for banks when it comes to
improving the customer experience. It offers great opportunities for banks to better understand
their customer needs while offering new propositions such as peer-to-peer payments, lending,
social trading, and personal finance management tools. The risk is that these offers will overload
Going Digital: The Banking Transformation Road Map

Figure 5
Technology can facilitate a fast and agile environment
Major challenges for banks
Front end

Middleware

Branches
and call
centers

Web and
mobile

Thirdparty
apps

API

API

API

Value-added functionalities

Customer intelligence kernel

Back end

Core banking system

Exponential growth in traffic and data

The rise of seamless, real-time data across channels
New functionalities, such as peer-to-peer payments,
loyalty programs, dynamic pricing, and open
online communities
The need for real-time information processing
by newly built kernels
Enhanced data management capabilities with
a strong focus on enabling all channels with a
360-degree client view
The need for fast and resilitent transactions and
bookings within core systems

Note: API is application program interface

Sources: Interviews; A.T. Kearney analysis

existing core banking systems with additional functionalities and processes, so change will
require smart, modular, highly automated solutions that are possibly maintained outside the
bank. Leading banks worldwide are creating a smart middleware layer that computes and
processes customer and business intelligence with state-of-the-art technologies and interfaces.
Ultimately, this trend will require banks to open up their systems or middleware layers to third
parties and use open APIs (application programming interfaces) to keep efforts at a minimum.
Co-creation and collaboration will be the new mantra of tomorrows leading banksa step
requiring fundamental adjustments to their approach.
Ultimately, flexibility requires a clear long-term vision and strong short-term execution.
As one leader at a European bank says, Flexibility must become the dominant gene in the
DNA of traditional banks new operating models. This means being committed to the longterm vision by embarking internally on the digital journey, even when the path to digital
transformation may not yet be known. With the environment changing and no traditional bank
yet reaching the digital end game, execution flexibilityby adopting a progressive test-andlearn approach and frequently reviewing plans and priorities to stay competitivewill ensure
alignment with customer needs in a fast-moving, competitive environment. Many banks are
using alternative organization models, such as adding subsidiary think tanks outside the
core bank or supporting innovation incubators that produce new solutions more quickly.
In a nutshell, this means adapting the operating models internal DNA to cope with the
external market dynamics.
3. People Engagement Is the Key Challenge
Perhaps the most importantand indeed the most difficultchange ahead for traditional
banks is a mindset change. The digital age is fundamentally impacting culture as it forces
banks to shift from a product-centric point of view to a client-centric one; from a place where
Going Digital: The Banking Transformation Road Map

the current IT set-up is doing the job to a tech-savvy mindset; from planning cycles to testand-learn; and from silos to inclusiveness. The executives in our survey highlight three
features of changing the culture for a successful digital transformation:
Forward thinking. Training and communication must involve everyone in the bank, including
departments not directly impacted by digital. Participants are focusing on providing clear,
action-oriented content such as ready-to-launch services and new technology uses. Some
banks are appointing digital communication ambassadors to usher in the new culture.
Empirical. Leading banks are developing the test-and-learn approach, with some asking
employees to practice mobile Internet at work during business hours to fully understand their
digital products and be fully aware of what is happening in digital.
Openness. Employees should be curious about new digital practices, new services, and
technologies. For leaders, this means accepting errors from the test-and-learn process, and
collecting and frequently sharing feedback among teams, clients, and partners.

The digital age is fundamentally impacting

culture as it forces banks to shift from
a product-centric point of view to
a client-centric one.
At the center of the leading digital transformations are top leadersspecifically CEOswho
become Chief Cultural Transformation Officers. To lead the bank to a new digital-focused
culture, leaders will have to initiate and lead the conversation about digital vision and increase
the banks ambition (see figure 6).

Figure 6
Digital banking requires a new type of CEO

Is a digital native who forges a digital agenda internally and externally

Strikes a balance between business as usual and disruption
Ensures reconciliation and inclusiveness as the natural Chief Cultural Transformation Leader
Between generation Y and previous generations
Among IT, marketing, and business
Between traditional and digital division

Create innovation boards that drive retail banking executive committees

Empower cross-functional teams
Adapt governance to support digital penetration, distribution network, IT transformation
Source: A.T.Kearney analysis

Going Digital: The Banking Transformation Road Map

To consolidate the banks strengths in a cohesive manner, the CEO needs to embody the
inclusiveness of a digital transformation to ensure that all generations are ready to digest
new technologies, that IT and marketing can deliver solutions to clients, and that best
practices are in play between the traditional side of the bank and digital business units
or subsidiaries.

Most banks have been on the digital journey

for years now, but it is only halfway through.
Operating agility and cultural changes
are next on the agenda for transformation.
Our respondents cite a few practical tactics for achieving this, including the direct empowerment of cross-functional teams, and the creation of appropriate governance to drive digital
both in operations (IT) and within branch networks.

Looking Ahead
Most banks have been on the digital journey for years now, but that journey is only halfway
through, our respondents say. Operating agility and cultural changes are next on the
agenda for the markets digital transformation, which will only pick up pace through 2020
(see figure 7). Technology trends such as Internet of Things and the spread of smartphones,
evolving customer behavior, and changing branch networks are leading to new customer
behaviors and expectations across all markets. Banks have no time to waste in addressing
these changes.
This will certainly mean fewer physical branches and more mobile services, with a customer
experience that is both complementary and consistent in all channels. In other words, the
leaders will offer true expertise from highly skilled professionals everywhere, be it a branch,

Figure 7
The pace of digital transformation will accelerate through 2020

Technology trends

Evolving customer behavior

Changing branch networks

Internet of Things

Digital usage crossing generations

Branches activity decreasing

Full penetration of smartphones

and tablets

Mobile Internet use increasing

Less traffic than on mobile

Digital culture spreading worldwide

across industries

Fewer but bigger branches

integrated in the customer experience
embedded with digital (flagship,
showroom)

Convergence
Explosion of cloud services

Emerging markets increasingly adopt

mobile banking

Source: A.T.Kearney analysis

Going Digital: The Banking Transformation Road Map

a chat room, or a video conference. Figure 8 highlights many of the steps in the transformation
road map, as banks build a digital foundation and then develop strong digital value propositions.
Indeed, the end-game may be close: paperless billing, 24-7 social network listening, and
authentication through biometric technologies are already seeing rollout in some markets
(such as Latin America).

Figure 8
A transformation road map must focus on allocating resources

Illustrative

Transformation road map

2012

2014

2020

Personify the digital culture at the leadership level

Shift to
a digital
culture

Develop client-centric culture

Value client-first communication
Train for digital

CEO and
top executives
push digital
momentum

Develop a tech-savvy culture

Develop community and intranet
Communicate and train on delivered new services and demos

Generate momentum

Build
an agile
operating
model

Leaders
define operations and
IT strategy
for digital

Developing a digital
value proposition

Building the foundation

Agile IT and
operations
Marketing
Branches

Smart and agile

middleware

Data model
harmonization

Integrated architecture
Seamless teaming
with business
Customer
journey
focus

Solutiondriven
approach

API

Test and learn

Selective outsourcing
End-to-end, digitally
optimized processes

Full deployment of new services

Improved customer experience
Open
ecosystem

Digital and branches

embedded in
customer journey

Source: A.T.Kearney analysis

Reflecting on the Future

The future will bring a new banking paradigm: a new delivery model where digital teams are
integrated with existing personnel, and where some pure digital players may add physical
branches to showcase their brands; newly formed IT with an app-focused front end, a central core
database connected and hosted in the Cloud, and a back end widely industrialized and outsourced; and a digitized culture, where all employees are digital certified, and where time and
cost are given to adapting skills and headcount to deal with competitive and margin pressures.
Compared to the way digital disruption is hitting other service industry sectors less protected
by regulation and domestic specificitiessuch as media, telecom, and retailit seems
that retail banks at this point have only addressed the tip of the iceberg when it comes
to digital transformation.
Current efforts in terms of marketing and distribution to build banks digital image and to keep
digital customers from slipping away seem to be providing short-term help, but there remains
much work to be done to ensure profits are protected in the future.

Going Digital: The Banking Transformation Road Map 10

In parallel to customer-facing areas, banks also need to reexamine their operating models,
with an end-to-end process review that takes into account current and target costs and the
proper allocation of both human and technological resources. For example, can legacy IT and
operations be adapted, or should pure-play models be developed with the goal of eventually
incorporating them into the core business?
Tough questions indeed, with goals that are no doubt difficult to achieve. Todays leading
banks, however, are already taking the lead in answering them.
By applying the seven success factors of digital transformation, banks will surely trigger
a positive evolution. Only time will tell if it's enough to respond to the digital revolution.

Authors
Michel Jaubert, partner, Paris
michel.jaubert@atkearney.com

Stefan Marcu, principal, Warsaw

stefan.marcu@atkearney.com

Matthias Ullrich, consultant, Frankfurt

matthias.ullrich@atkearney.com

Jean-Baptiste Malbate, consultant, Paris

jean-baptiste.malbate@atkearney.com

Renaud Dela, consultant, Paris

renauld.dela@atkearney.com

The authors wish to thank their colleagues Massimo Arrighi, Cecily Carmona, Daniela Chikova, Sean Choo,
Torsten Eistert, Rob Feeney, Rik Goslinga, Yasushi Kubokawa, Ettore Pastore, Manuel Garcia Ramos,
Ilnort Rueda Saldivar, and Michael Weiss for their valuable contributions to this paper.

Going Digital: The Banking Transformation Road Map 11

About A.T. Kearney

A.T. Kearney is a leading global management consulting firm with offices in more
than 40 countries. Since 1926, we have been trusted advisors to the world's foremost
organizations. A.T. Kearney is a partner-owned firm, committed to helping clients
achieve immediate impact and growing advantage on their most mission-critical
issues. For more information, visit www.atkearney.com.

About Efma
As a global not-for-profit organization, Efma brings together more than 3,300 retail
financial services companies from more than 130 countries. With a membership base
of almost a third of all large retail banks worldwide, Efma has proven to be a valuable
resource for the global industry, offering members exclusive access to a multitude of
resources, databases, studies, articles, news feeds and publications. Efma also
provides numerous networking opportunities through working groups, online
communities, and international meetings.

For more information, permission to reprint or translate this work, and all other correspondence,
please email: insight@atkearney.com.
2014, A.T. Kearney, Inc. All rights reserved.