The Virtues Of Incremental Digitization

Banks have a cost problem. The costs of a typical bank represent anywhere from between 60 percent and 80 percent of its income. Add credit losses and fines to the mix, and little remains from income to return to shareholders.

That’s one reason why the conventional wisdom among digital gurus is that it is only a matter of time before technology players with low-cost models disrupt the banking industry. Cursed by their incrementalist approach to innovation and cost cutting, incumbent banks are bound to fall behind.

We are skeptical of this pessimistic viewpoint. Incrementalism, we believe, can be a virtue, provided it is relentless. This is the lesson from many enterprises, including tech businesses. And incumbent banks enjoy important advantages over tech challengers. The bank of the future is likely to evolve from the bank of today.