NEW YORK--(BUSINESS WIRE)--Traditional retail banks must move urgently to implement digital services customers want now to fend of disruptive encroachment from nimble, low-cost, digital-only entrants that are grabbing market share in profitable niches; this according to “Building the Retail Bank of the Future,” a new report released today by Bain & Company.

Bain conducted intensive benchmarking sessions with 78 global banks and found that more than half still lag substantially in efforts to create the “bank of the future” experience that customers already expect – one that offers “anything, anytime, anywhere” banking via a combination of digital and physical assets – what Bain calls the “Digical” transformation. In addition to benchmarking of banks, Bain surveyed 77,000 bank customers and found that customers who conduct the most digital transactions also have the greatest satisfaction with their banks and do the most business with them. The survey shows that customer loyalty scores were nearly three times higher among digitally-active customers.

Bain’s research, which looks at Digical transformations across all sectors, shows that while retail banking is one of the top five leaders in fast-moving Digical disruptions, it still has further disruption ahead through 2025, side-by-side with industries such as insurance, medtech, pharmaceuticals and healthcare payers and providers.

Other key findings of Bain’s report include:

• Three-quarters of banks in Europe and the Americas surveyed in the Bain benchmarking study plan to re-shape or close their branch networks, with some banks in the Bain sample, closing roughly 30 percent of branches over time. “This will be expensive for those banks that have been slow to move,” according to the report. Bain estimates that for a U.S. bank with 1,000 leased branches, it will cost up to $120 million to close 30 percent its network.
• While most banks are reducing the numbers of tellers and assistant managers, between 50 and 75 percent are expanding specialist and relationship adviser roles.
• Nearly nine out of 10 banks tracked by Bain rate this Digical transformation as extremely important, yet more than half have yet to reach even the halfway point in implementation. Only 60 percent even have a migration plan with clear budgets.
• For half of banks benchmarked, only 40 percent of retail banking processes are “one and done.” In other words, according to the report, customers have to “endure a slow, clunky, multistage experience.”
• Banks are “plowing money into technology to promote a more seamless across channels”—40 to 60 percent are adding in-branch tablets, video teller machines, smart ATMs and similar advanced retail banking technologies.
• Seventy percent of banks benchmarked organize digital as a “standalone” department; though Bain finds that this structure can ultimately hinder omnichannel integration.

“The traditional barriers to entry in banking, such as personal relationships, are eroding, but banks that cater to older, higher-value customers might be missing it,” said Mike Baxter, a New York-based partner who leads Bain’s Financial Services Practice in the Americas. “For traditional banks, the choice is clear: Invest in change or die with your older customers. Customers in their 20s, which is a prime age for choosing or switching banks, increasingly consider digital capabilities when they pick a bank.”

Addressing this need, Bain has developed a clear roadmap for building the Bank of the Future, which includes the following imperatives:

• Wow the customer with digital offerings. Banks have long deployed technology to cut costs; now they need to fuse digital and physical assets to make customers’ banking lives easier, more convenient and engaging. For instance, the Commonwealth Bank of Australia has innovated the home buying experience into a truly omni-channel approach with their smartphone based 'homefinder' app. Hana Bank in South Korea has a mobile platform called Hana N Money that is a full-service bank in a smartphone.
• Optimize and reduce the bank’s physical footprint. With teller-assisted transactions declining at 10-15 percent annually in the U.S., the bank of the future is losing its branches. Bain sees its benchmark banks shrinking as much as 30 percent of their networks over time. But while they are cutting tellers and managers, they are upping specialist and adviser roles and investing in technology that helps customers’ banking needs faster, with more self-service and even provides services beyond banking. For example in Singapore, more versatile ATMs let customers buy airline tickets or pay parking fines.
• Overhaul the technology platform and make substantial IT improvements, funded in part by simplifying and streamlining products and processes. Joined-up IT capabilities are becoming a competitive advantage, giving customers a “one and done” experience for complex transactions and a range of different interactions. As for funding, a new CEO at one European bank recently slashed in half the bank’s portfolio of 150 legacy projects that were misaligned with the bank of the future, freeing up €120 million for reinvestment.

“There was a time when banks could dictate the experience customers received, but that is quickly becoming a distant past,” concluded Dirk Vater, global head of retail banking for Bain who co-authored the report. “Banking customers can now dictate the experience they want, when they want it and where they want it. Our ‘Retail Bank of the Future’ benchmarking study is an excellent best practices playbook that shows how the best banks in the world are adapting and what the rest can do to learn and catch up.”

To receive a copy of the Bain report, “Building the Retail Bank of the Future” or to schedule an interview with its authors, contact Cheryl Krauss at cheryl.krauss@bain.com or +1 646-562-7863, or Frank Pinto at frank.pinto@bain.com or +1 917-309-1065.

About Bain & Company, Inc.

Bain & Company, a leading global business consulting firm, serves clients on issues of strategy, operations, technology, organization and mergers and acquisitions. The firm was founded in 1973 on the principle that Bain consultants must measure their success by their clients' financial results. Bain clients have outperformed the stock market 4 to 1. With 50 offices in 32 countries, Bain has worked with over 4,900 major multinational, private equity and other corporations across every economic sector. Follow us on Twitter @BainAlerts.