How Banking Can Survive Digital Disruption

The disruptors in the banking industry are rewriting the rules followed for decades. But, these new rules will only suffice until the next wave of disruption comes along. As a result, banks and credit unions must be agile and responsive. Bold strategies are required.

Subscribe TodayDigital disruption is occurring at every level of the financial services industry. New competitors, new channels, new processes and new consumer expectations are shifting the banking industry paradigm. In response, banking executives are balancing the need to be an agile responder, while realizing that many of the changes required will take time.

“Instead of the traditional bell curve response of a typical product or service life cycle, a series of quick-fire innovations has produced a ‘shark fin’ business model, where disruptive products or services are embraced and discarded in fast succession,” Accenture states in their report, ‘Digital Strategy Execution Drives a New Era of Banking‘. Referencing research done by Larry Downes and Paul Nunes, (Big Bang Disruption, Strategy in the Age of Devastating Innovation), Accenture states that such rapid digital innovation cycles have the potential to drive up return on equity (ROE) by more than 5% for both mature or emerging market banks.

“Digital can drive up return on equity by more than 5 percent for mature or emerging market banks.”
— Accenture

Beyond the profit potential, this rapid innovation cycle is imperative as mature products get replaced by new technologies and shorter product life cycles. It is also important now that entire product lines are being created or destroyed overnight by these ‘big bang’ disruptors. As we have seen throughout the financial services industry, digital disruption can come out of nowhere and instantly be everywhere.

Larry Downes and Paul Nunes make that case that, unlike previous disruption, where being cheaper than established offerings was the way to move market share, today’s disruptors are more inventive and better integrated with other products and services. In addition, they found that many new entrants exploit consumers’ growing access to product information and their ability to contribute to and share it.

Response to Digital Disruption … At Two Speeds

As competitive pressures increase, Accenture believes it’s critical to execute at two speeds to sustain market momentum while also strengthening the core underpinning of a bank or credit union.


Speed 1. Disruptive growth options outside the core: Moving at disruptive speed means being able to move at the speed of the new entrants that are making headlines. Organizations such as PayPal, Amazon, Apple, etc. are building financial services that work beyond the traditional boundaries of banking … and are doing so quickly.

Many of the most recent disruptions in financial services feature virtually integrated solutions … they are developed and deployed via the infrastructure of the cloud. With this agile and well-funded competition, traditional operational and organizational assets (systems, size, distribution network) suddenly morph into liabilities.

Accenture refers to many of these types of solutions as being the core of a consumer’s Everyday Bank. Growth ‘outside the core’ requires the banking industry to be able to disrupt itself, creating new options that may involve partnerships with non-financial firms. The culture must become entrepreneurial while being accepting of greater uncertainty.

Examples of ‘disruptive growth’ according to Accenture could include:

  • Taking on the organizational personality of a digital disruptor, targeting specific target markets or product lines.
  • Building a digital wallet with in-app commerce built on value-added services.
  • Providing integrated financial or non-financial solutions to serve life needs beyond banking.
  • Leveraging crowdsourced lending and payment capabilities.
  • Monetizing big data insights.

Speed 2. Transformation of the core: While pursuing the rapid-fire components of disruptive growth outside the core, Accenture believes successful digital banking organizations must also move at a more deliberate pace to transform three elements of their underlying core:

  • Digital customer strategies – Consumers must be provided an omnichannel customer experience, where they can choose how to engage with their bank or credit union at any time on any device. The channels must be integrated and contextual, with the ability to proactively engage on behalf of the consumer.
  • Digital enterprise strategies – The institution must evolve to become an overarching digital banking organization, including digitizes processes and procedures, digital collaboration tools and a digital culture.
  • Digital operational strategies – Evolving to much more flexible technology that supports digital transformation is required. This includes an open architecture that will allow banking organizations to integrate with third parties that may have different architectures running differently.

Transformation of the core will require shifts and redeployment of resources, people and technology and will result in new operating models and new digital ecosystems.


Strategies to Survive Digital Disruption

So how does an incumbent banking organization survive or even thrive in the face of digital disruption? While there are no magic wands or secret sauces, there are strategies that can help organizations be more prepared for the inevitable change on the horizon.

1. Assign Transformation Roles: Accenture recommends governance built on three roles supporting 1) the technological changes required; 2) the impact on the current organization model, and; 3) the needs and trends of the digital consumer. “While taking on these important roles, these ‘entrepreneurs’ need to work in a highly collaborative manner, setting the digital vision, selecting the options to be launched, defining the digital capability development strategy and guiding the long-term transformation of the core bank to scale up innovations across the enterprise,” states Accenture.

2. Adopt a ‘Digital Mindset’: To respond to digital disruption, financial organizations will need to evolve their internal and external cultures. ‘Being digital’ requires rethinking all aspects of how we conduct banking in the eyes of our employees and in the yes of the increasingly digital consumer.

Changing internal processes, moving to contextual engagement and operating in real-time are all foreign concepts for most financial institutions. A major internal change will also include the increased use of data and analytics to initiate and support decision making, product development and distribution.

Attracting and retaining top digital talent that can support this internal culture shift will become a priority. According to Accenture, “Sixty-one percent of digital organizations see shortages of digital skills as a top challenge in digital transformation and are concerned about how they can attract and retain top digital talent.”

Externally, institutions will need to illustrate a ‘digital mindset’ by leveraging digital technologies to improve customer engagement and the consumer experience. This will include gaining a better understanding of the consumer purchase journey, the preferred distribution channels, the impact of mobile on the use of products and serves and how social media will impact decision making.

Larry Downes and Paul Nunes provided four additional strategies that incumbents can use to survive digital disruption in their book Big Bang Disruption.

3. Monitor the Marketplace: Leverage tools and marketplace futurists to recognize when change is on the way, and to help interpret the meaning behind seemingly random events with insight and clarity. These people may or may not be your employees, but could also include customers, venture capitalists, industry analysts, etc. The key is to learn not only whom to listen to and when, but also how to react once a trend or change in the marketplace occurs.

4. Slow the Disruption: While it is almost impossible to stop disruption once it has begun to gain scale, roadblocks can sometimes be put in the way of disruptors to slow the transformation. This may include the lowering of prices if the disruptor is competing on price, or competing with the new entrant on a new battlefield or by partnering with a competing offering. As with all of the responses to disruption, speed is of the essence.

5. Exit Business Lines or Strategies: Digital disruption can quickly result in a depreciation of value of a current line of business or strategy. Borders, Circuit City, Blockbuster and many other once revered brands are illustrations of how entire industries can be upended.

In financial services, industry watchers may believe banks abandoned small business payments when few organizations responded to the infiltration by Square and PayPal. Other observers may wonder how long legacy banking organizations will continue to support massive, large footprint brick and mortar facilities at a time when there is a mass exodus to digital banking.

While a legacy bank’s brand and customer base may have significant value today, that value can be weakened if an organization doesn’t adequately respond to the digital disruption in the marketplace.

6. Diversify: “Diversification has always been a hedge against risk in cyclical industries, states Downes. “As industry change becomes less cyclical and more volatile, having a diverse set of businesses is vital.” This is where ongoing innovation and the potential for financial and non-financial partnerships become important.

Digital disruption cycles can be very impactful, but also surprisingly short. As a result, banks and credit unions will need to be ready with the next ‘best thing’ before someone else enters the marketplace.

Becoming a digital banking organization is not an option. To respond to the increasingly demanding digital consumer, and hopefully be on the ‘front screen’ of your customer’s mobile device, requires the offering of value-added digital services with a simple user interface.

By responding to the digital disruption occurring at two different speeds as recommended by Accenture allows your organization to respond to the immediate attacks by new fintech entrants while transforming your core for the future.

Jim MarousJim Marous is co-publisher of The Financial Brand and publisher of the Digital Banking Report, a subscription-based publication that provides deep insights into the digitization of banking, with over 150 reports in the digital archive available to subscribers. You can follow Jim on Twitter and LinkedIn, or visit his professional website.

This article was originally published on August 5, 2015. All content © 2018 by The Financial Brand and may not be reproduced by any means without permission.


  1. Jim, I like much of what the Accenture team has to say. However, I do have one simple concern. The focus of their report makes it seem like the FinTech sector is singularly focused on disrupting the incumbent banks.

    The 4th page of the report leads with the following:

    Digital disruptors are attacking the
    banking industry, redefining customer
    expectations and reshaping industry
    boundaries. From competitors to
    customers, processes to people,
    banking leaders who want to lead
    in a digital economy need to make
    fundamental changes to how they
    operate. As one of the world’s largest
    banks acknowledges: “we must change
    our execution model to be digital.”

    The first part says: “Digital disruptors are attacking the banking industry”

    Is that a true statement. Yes. My observation of the FinTech sector is this:

    According to David, Gerbino, a FinTech and Data Driven Marketing Consultant, and FinTech Advisor, “many FinTech startups are bringing their digital disruption to banks to help them redefine customer expectations and reshape their boundaries.”

    My statement is a re-wording the Accenture statement. I see FinTech and digital disruption happening in both places. Some takes business away and some makes them better.

    One last point. Disruption is an over generalized term. If a money center retail bank division loses outstanding loan balances (and its related profits) to a P2P lender, there is disruption. The fact is some of the profit may end up in another division of the same bank.

    FinTech and digital disruption needs to be embraced by all banks and credit unions. Maybe we should not all it disruption. Maybe we should call it evolution. Those who do not evolve will simply wither away and be acquired.


  2. Jim Marous Jim Marous says:

    Great thoughts and counterpoints to the research DG. Especially around the fact that there are many new entrants that are partnering with the legacy organizations as opposed to looking to ‘disrupt’ them. I also agree that we tend to focus on nice terms that become both overused and misunderstood. I am actually a party to much of this overuse at times. Thanks for your insight and contribution to the article.

  3. Jim,

    full disclosure. I too am actually a party to much of this overuse at times.


  4. I could not agree more, after being in the financial industry for 25 years from both as a consumer and a business leader my conclusion is that banking is not for the Main Street consumer they have never taken the approach of the consumer first and never will unless you have significant asset with them.
    There is a lack of education for the consumer in the banking system and the products comes from too many different a sources , it should be more centralized whereby at a glance one should be able to see the whole financial situation of a family. That is just one aspect that banking are falling short

  5. Alvin Ernest says:

    While I agree with much of the finer points in this overview, the thrust and orientation of this advise has some major issues. I say to people all the time “knowing what to code is more important than coding itself”, this is because the “purpose” of coding is to virtualise workflows that create value, so understanding that “value” is paramount. Consequently, we must focus on “digital solutions” for “business strategy” NOT “digital strategy” per se. The promise of the digital tool-kit is “agility” to cope with rapid lifecycles and even “value” contradiction as the tool-kit changes at an exponential pace. “Empathy” is the key to successful “disruption”; ironically it is not technology! So there can be no strategic commitment to a “technology” narrative… the only important narrative is that of continuous “value creation” for the customer (derived from empathy) and coded at speed with no allegiance to the past i.e. a full “embracement” of “disruption” NOT “extrapolation”. Importantly bankers should consider that they already have much understanding of what consumers value, but their culture has maximised “profits” instead of “value creation” and that has become their “digital” Achilles Heel! Change will not be easy!​

  6. ger heffernan says:

    Hi jim

    Great report,consumers are fast connecting through mobile.barriers are like borders ,the borders are gone with the financial barriers to consumers are next,the fintech companies that provide banking without these barriers in a borderless mobile world will get market share easy!

    Thanks for all the reports and graphs


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