6 minute read 13 Jun 2018
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How convergence in banking could be an opportunity for growth


EY Global

Multidisciplinary professional services organization

6 minute read 13 Jun 2018

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In the race to become the digital bank of the future, mature banks are grappling with the disruption of convergence. 

Tempted by the promises of new technology and under pressure from FinTechs attacking traditional profit centers, incumbent banks are spending millions of dollars — and months, if not years — on complex digitization initiatives as they try to out-tech the FinTechs.

Distracted by their disconnected efforts to develop an app here, a mobile platform there, legacy banks may fail to recognize the larger organizational transformation that is required to become a truly digital enterprise.

What’s more, these distractions leave them vulnerable to an even bigger threat on the horizon. As convergence drives new and unconventional partnerships across industries, digital giants are entering traditional financial services markets. Now banks face competition from not only FinTechs but also huge, experienced e-commerce players with large customer bases.

These digital technology leaders have a sophisticated approach to harnessing their vast customer data. They use advanced analytics and artificial intelligence (AI) to unlock actionable insights, not only to predict and propose attractive purchases, but also to reveal ways to better serve their customers’ payment and related financial needs.

By delivering frictionless and accessible payment services (including easy access to credit and payments at point of sale), these marketplaces offer customers an attractive way to bypass their traditional bank entirely. After all, if these providers can remove an obstacle for their customer, why wouldn’t they — especially in a regulatory environment that is increasingly focused on cultivating greater customer freedom?

For mature banks — with legacy systems, underdeveloped analytics capabilities, huge global staffs and slow-to-change cultures — this signals a stealth invasion of massive scale. And it represents a profound crossroads for these organizations: wait to be disrupted by convergence or get ahead of it. But that takes the courage to rethink entire ecosystems and, in doing so, redefine what the digital bank of the future will look like.

What if "being digital" is more than simply "going digital"?

Rather than simply tacking the newest technology solution onto existing challenges, the digital bank of the future represents a complete transformation of business strategy and optimization. Tomorrow's digital bank is less about achieving a specific "end state" and more about living as a highly adaptable organization that deploys technology, data and alliances to offer the personalized and frictionless services today’s customers expect.

This approach to strategy requires banks to reframe their entire ecosystems, embracing new business models, new alliances and the technologies that enable them. They need to identify and anticipate customer needs and behaviors faster and more accurately, then quickly assemble the supply chain (internally or externally) to deliver best-fit solutions.

And then they must live this way, relentlessly and continuously.

For banks, it represents a transformative shift from a business driven by transactions to one driven by information. It relies on embedding the use of data, analytics and related technologies into every stage of the customer interaction to maximize value to customers, employees and shareholders.

The digital bank of the future isn’t an end state; it's a permanent strategy of reinvention

Here are four key steps banks can take toward becoming the digital bank of the future:

1. Articulate a clear vision
Who you were yesterday isn’t who you will be tomorrow — or the day after that. It’s a state of perpetual reinvention, and it takes clear vision, data-driven technologies and dynamic strategy.
Rob Toguri Partner
Financial Services Advisory, Ernst & Young LLP

Banks have to learn to live comfortably in a permanent state of constant change. That’s the reality of a dynamic ecosystem in which technology and customer needs — and the combinations of partners best suited to address them — are changing every day.

More than ever, banks need to articulate a clear vision: what do they want to be, in which market, serving which kind of customers? Then their leaders need to zero in on the transformations that help them achieve that vision and on bringing their shareholders along on the journey. Most of all, leaders need to make peace with revisiting the strategy constantly, because the one that worked yesterday is not likely to be the one that will work tomorrow.

2. Put customers at the center

Banks are sitting on rich yet often uncoordinated data sets where valuable customer insights lie hidden. By unlocking that data from its silos and deploying a full range of real-time analytics and AI, banks can better understand their customers and their needs, and move faster to deliver the customized products and services when, where and how the customer wants. Those insights can be a critical step toward recapturing customer trust. Customer-focused data and analytics can also reveal which services drive value so banks can move faster to jettison those that do not.

3. Reinvent the business ecosystem, internally and externally

Transformation on this scale requires banks to rethink every aspect of their business ecosystem, internally and externally, to identify new avenues to growth without adding bulk.

Internally, this could be via intelligent automation of data collection and data quality processes, robotic processing automation across core functions in finance and risk and the use of these and other emerging technologies in capital management, regulation and compliance, and customer services applications. Cloud providers can enable banks to access dynamic platforms and new capabilities with "pay as you go" models that are less rigid than conventional fixed-cost structures.

Externally, banks can explore new ways to expand their ecosystem to help drive both innovation and value:

  • Acquisitions can help grow reach and can also help address the pain points of innovation, engaging the built-in agility of smaller players at a fraction of the cost of developing similar capabilities in-house.
  • New partnerships can help banks enable improved customer experiences. In this, banks can learn from those well-connected digital giants, who have proven adept at managing third-party suppliers and multiple dynamic relationships to bundle services and deliver on fast-evolving customer needs. They leverage cloud-based technology, particularly in implementing microservices and APIs, to cultivate and manage those third-party relationships seamlessly.

Banks will need to consider which acquisitions and/or partnerships can drive value. And they'll need to revisit these relationships frequently to anticipate shifting market forces — for example, open banking.

4. Pursue immersive innovation

Technology and analytics tools equip banks to experiment with scenarios and product ideas, quickly and immersively. This experimentation culture can ignite the innovation cycle: fail fast and learn a lot or succeed and pursue new markets. This also helps to attract and retain the kind of talent that fosters innovation. And it's not just limited to new products and services. AI and augmented and virtual reality can help banks model up new business processes and allow stakeholders to experience them in action.

Convergence driven by new players and emerging technology is rapidly rewriting the financial services landscape. Legacy banks that choose to focus too narrowly on digitizing offerings — instead of getting ahead of the disruption of convergence — risk losing out in the competition for customer loyalty. Only those banking leaders with the courage to embrace a dynamic, customer-focused strategy of perpetual reinvention can help their organizations emerge as the digital banks of the future.


As digital giants enter new markets — including financial services — incumbents need to activate innovation enabled by technology, data and analytics to get ahead of these new competitive challenges.

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EY Global

Multidisciplinary professional services organization