by Kim Kim Oon, Managing Director – Accenture Strategy, Banking, Alan McIntyre, Senior Managing Director – Banking, Edwin Van der Ouderaa, Senior Managing Director – Strategy & Consulting, Customer, Sales & Service Lead, Global
- Retail banking is facing a watershed: the threat of disruption by innovators with leading-edge technology and a strong sense of purpose.
- Our Purpose-Driven Banking 2021 report examines banks’ purpose-driven strategy and quantifies its potential to help them win in a changing market.
- We find positive correlations between purpose-driven strategies and better financial performance and market valuations.
Findings also reveal that banking leaders successfully connect their digital transformation agenda to their purpose.
Is banking about to have its electric car moment?
The transition from gasoline cars to electric cars is a compelling illustration of how quickly business models in a well-established industry can crumble in the face of new technologies and customer expectations. Although innovative competitors like Tesla have long been preparing for this moment, many incumbents failed to appreciate how quickly it would arrive.
Our research shows that purpose isn’t only about doing the right things for customers and society—it is also a powerful way to drive growth and higher market valuations.
For banks, the lesson is that there is no force more powerful than clarity of purpose combined with digital maturity. It is how Tesla seized a commanding lead in the shift to the new auto market. Likewise, the next generation of banks are thinking about how they can use purpose as a competitive differentiator while they pair it with behavior-influencing digital experiences to create unrivalled economic value.
Our research shows that purpose isn’t only about doing the right things for customers and society—it is also a powerful way to drive growth and higher market valuations. This study is the latest addition to a series of Purpose-Driven Banking reports we launched in 2020 to understand how purpose can move the financial performance needle for banks.
The recent Banking on Empathy report examined how purpose is applied to customer interactions. Our new study builds on this by analyzing the intensity of purpose-driven strategies at 70 leading banks from around the world across three key areas – customers, employees, and products. It assesses how the different facets of being a purpose-driven business impact profitability, customer trust and market position.
Purpose helps banks enhance profitability and shareholder value
Our findings suggest that banks that earn recognition as a purpose-driven institution will unlock substantial value and competitive advantage, which in turn will drive customer satisfaction and retention. We found higher levels of customer loyalty among Purpose-Driven Banking Leaders.
4 pts| The share of customers planning to switch to a new main bank in the next year averages four percentage points lower among Purpose-Driven Banking Leaders when compared with other banks.
Earlier Purpose-Driven Banking research from Accenture suggested that incumbent banks with a clear purpose and high levels of customer trust could lift their retail revenue by 9 percent per year. The new research indicates that Purpose-Driven Banking Leaders are already realizing significant gains. This group achieved double the revenue growth of their peers over the past four years.
3 pts| Over the 4 years to June 2020, Purpose-Driven Banking Leaders achieved an average return on equity (ROE) that was 3 percentage points higher than that of the other banks.
One of the most compelling findings is that embracing a purpose-driven agenda can help banks to unlock the full value of their investments in digital transformation. The highest ROE and price-to-book ratios are to be found among the banks that excel across both dimensions, confirming that purpose and digital maturity are a potent competitive combination.
Why banks are making slow progress on the purpose-driven journey
Despite this evidence, only a handful of banks are embracing their purpose with genuine enthusiasm. We believe there are four major reasons:
Banks do not believe there is a burning platform – They expect the transition to a purpose-driven model will be slow and believe there are no competitors ready or able to disrupt the banking market with such an approach.
A focus on delivering shareholder returns- A shift to purpose-driven banking may demand that banks cannibalize some of today’s revenues for the business’s future growth. Many banks may be focused on short-term revenue and profit gains instead.
The magnitude of the change seems overwhelming – To become truly purpose-driven, a bank will need to rewire its entire business. During the pandemic, embarking on such a large strategic transformation may be difficult to contemplate.
No explicit mandate from regulators and government – In the absence of regulations that mandate banks to improve pricing transparency, simplify products, and focus on customers’ financial health, many are choosing business-as-usual.
It’s unsurprising that some banks are reluctant to cannibalize revenues, realign their business models and re-engineer their value propositions during a pandemic. Yet inaction may pose a bigger threat than grasping the nettle.
Purpose-Driven Banking Leaders in our research show how banks can grow revenues, profits and market valuations by doing the right thing for their customers. Read our report to learn more.
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