Digital Bank Strategy — The Missing 4th Option

I conducted a twitter survey on Bank Strategy and I was surprised by the inconclusive results. I asked my followers (who are mostly Finance and/or Technology folks) the best strategy for large incumbent banks to compete with new digital banks. The options were to buy a digital bank, build their own digital bank or transform themselves into a digital bank. Of the 1000+ survey responses, the opinion was split almost evenly!

I have seen a few writups of this poll and commentators giving their input so I thought it would be good to explain the purpose of the poll and what I belive this shows. This for me highlights a strategy paralysis facing large incumbent banks. They can see the new digital challenger banks on the horizon, they know the challengers are gaining appeal, new customers and deposits. They know the new players are chipping away at their core business — but what should they do about it? All banks have a department called “Strategy” but from what I have seen, few have a confident strategy here.

I have been fascinated observing the various, and sometimes clumsy, attempts by banks at all 3 of these options. Buying a Digital Bank seems like the quick win here providing the challenger bank is within budget. However the big risk is that the legacy corporate culture of the incumbent will quash the new disruptive division like antibodies…