Banking On Fitness: Ready To Sprint

The Indian banking system has been in an upheaval over the last few years. Banks have been grappling with multiple challenges - low overall credit growth, high non-performing assets, changing customer dynamics, increasing competitive intensity due to entry of new banks, alongside fintech startups trying to disrupt the business model. In this scenario, it is even more important for banks to recognise the changing game and sharpen their focus on a winning way for the decade ahead.

As a first step, bank leaders must define the bank’s singular value proposition (its ‘way to play’ - the way the bank chooses to face the market and create value for customers). It is important to note that this value proposition need not be a single offering, but a combination of compelling offerings that together make the bank brand promising.

In a crowded market where multiple banks are vying to become the ‘primary banker’ for the most profitable ‘Top 20 per cent’ universe of customers, leaders need to ensure that the bank stands out for something and makes strategic choices so that costs and investments flow from ‘bad’ to ‘good’. For example, when Commerce Bank was set up in New York, one of the most crowded banking markets, it soon created a niche space for itself  with 24-hour branches, family and highly user-friendly digital access. Similarly, Commonwealth Bank of Australia embarked on a multi-year journey to become the most digitised bank in Australia with some industry-leading apps backed by advanced data analytics. Similarly, Capital One’s ability to explore ‘big data’, Goldman Sachs’ approach to ‘real-time risk management’, Credit Suisse’s  ‘one-bank proposition,’  Deutsche Bank’s ‘transaction banking franchise’ and Santander’s ‘industrial processing model’ – are some well-known examples of distinctive capabilities that few,  if any, of those banks’ competitors can match.

Banks need to develop a clear-value proposition centred around three to five identified capabilities to set them apart and then invest in these to improve competitiveness. However, developing such distinguishing capabilities require substantial investments over prolonged periods and banks need to find money within to embark on a `Fit for Growth’ initiative that balances prudent cost-cutting in non-vital and non-differentiating areas with investment in distinctive capabilities. Costs thus, need to be transformed from inescapable burdens to exciting pro-growth choices. So, banks need to evaluate their current operating models, identify cost-levers and develop rationalisation initiatives to drive sustained performance improvement and free resources to invest in productive areas.    
Globally, banks have transformed into `Fit for Growth’ through multiple ways – from customer-backed process transformation to product and service simplification to digitisation or delivery-model optimisation. The goal is a new operating model with greater scalability and less complexity to maximise growth, as well as a tactical plan to guide the execution. Eventually, banking is moving towards a lean, highly agile and digitised world and leaders will need to find the path most suitable to their banks to project their differentiating value proposition:

* Customer backed process transformation: Banks can redesign end-to-end processes and customer journeys to eliminate waste and create scale through consolidation of similar activities resulting in a leaner cost base, which can lead to financial benefits of 15-25 per cent.
* Product and Service Simplification:  Banks can minimise customisation where the customer sees no value (aspects increasingly driven by regulation), align cost-versus-complexity trade-offs with the strategic direction of the business and simplify service platforms.
* Digitisation/Automation: Digitisation can act as an effective tool to reshape customer journeys through automating high-volume, time-consuming transactional tasks leading to substantial cost reduction, alongside helping customers towards self-service. Artificial intelligence can also be used to transform both front and back-office operations with its self-improving programmes. Partnerships with fintechs can be leveraged to enhance digitisation capabilities.
* Delivery-model optimisation: Optimisation of the physical and digital channels along with appropriate in/outsourcing model deployment can help in reducing overall distribution costs.
* Data and analytics-driven transformation: Developing a deep understanding of the customer through predictive analytics, simplify products to deliver a significantly enhanced customer experience with lower levels of operational risk.

Leaders will need to implement policies that accentuate appropriate behaviour and foster sustainable transformation. Thus, the `Fit for Growth’ exercise is not a one-time event, but a way to stay fit by cutting costs and deploying resources to maximum effect year after year.

A few banks in India which have significantly outperformed, both in terms of growth and sustainability have taken the lead in enhancing access through partnerships, optimising distribution across both physical and digital channels, improving functional delivery models or integrating product siloes to provide customer centric propositions. At the same time, leading private banks are rationalising operating costs through digitisation, using robotics to centralise operations, rationalising vendors, deploying appropriate outsourcing models, reducing indirect spends and hence, building operating efficiencies. The question bank leaders in India today need to ask is: `Are Indian banks ready and fit for the next level of growth?’