Accenture Banking Blog

In Formula One auto racing, the pole position—the front-of-the-line starting position won by the top qualifier prior to a race—is strongly correlated with first-place and top-five finishes. Yet, the fact that the pole car isn’t victorious in even more races is prompting racing engineers to assess the impact of other in-race factors, like the longevity of tires. Being first out of the gate is important, but it isn’t the only thing that matters in Formula One.

A similar question can be asked of traditional retail and commercial banks. Digital transformation is the #1 issue for many executive teams, but does digital pole position consistently generate superior economic performance or do other in-race factors determine which banks come out on top?

Does digital leadership and the ability to radically transform a traditional bank into a digital-first institution consistently create superior economic performance?

Read the report

One complicating factor is that the cars of the traditional banks are increasingly competing against a bunch of other vehicles, from Bigtechs unveiling their own credit cards and payment services to digital challenger banks capturing millions of customers to the recent bold Facebook announcement of a global digital currency. These and other industry events happening in just the first half of this year continue to complicate banks’ racing lanes, increasing the threat of disruption and undermining investors’ confidence in the future of the traditional bank business model to consistently create profitable growth.

Traditional bank leaders haven’t been sitting idly by. They have been hard at work over the past five years redesigning their cars for the digital world and attempting to change the tires on those cars while they are moving. Between 2015 and 2018, traditional retail and commercial banks spent some US$1 trillion globally on efforts to transform their IT through technologies like cloud, AI-powered analytics, and agile software development. But those efforts beg the question what did they get for that spend? Is it putting them in pole position and raising their probability of winning the race? Does digital leadership and the ability to radically transform a traditional bank into a digital-first institution consistently create superior economic performance? We answered these questions through our recent assessment of the largest 161 retail and commercial banks from 21 countries, categorising them by their digital maturity (independent of economic performance) and then examining how their economic performance correlates with our assessment of their digital maturity.

What we concluded is a waving green flag for digital transformation. Digital maturity is increasingly associated with higher market valuations, indicating that digital leadership is an important determinant of economic success. The higher valuations are also justified by better operating economics and return on capital. But unlike many digital-native businesses, improvements in operating economics are being driven by efficiency, not differential revenue growth. Our research shows that the more digital a bank becomes, the more dependent it becomes on balance sheet spread income as digital compresses many of the traditional sources of bank fee income like payment and advice fees.

For banks that aim to compete and win in the ongoing race for investor favour, our research suggests two key actions: take full ownership and be ‘all in’ on digital transformation to realise the efficiency gains that the technology can offer, but also start thinking early about how the digital bank you are building can generate faster revenue growth, either through an acceleration of asset and liability gathering (often via third parties) or by replacing traditional bank fee income streams with new income streams that harness the power of data and analytics.

It turns out that being in pole position does matter, and that those banks that are lagging and believe that a fast-follower strategy will allow them to win the race may be disappointed by the final result.

I invite you to get details of the findings and the impact of banks’ digital maturity on their economic performance in our latest report, Does Digital Leadership in Banking Really Matter?