The banking industry is experiencing dramatic technological change and disruptive innovation. The questions are: how many executive teams have recognized it; what is their strategy; and what will it take to manage in the new environment? Margin pressures are the norm, with projections that it will take another twelve to eighteen to trend higher. Also, consumers and regulators are applying significant pressure on fees and compliance, adding revenue stress and building a somewhat hidden cost of compliance. Even the media is beginning to change its focus.  In this environment, there is a critical area of important opportunity for banks. Operating cost is the one lever that bankers can focus on since productivity gains translate directly to the bottom line when implemented effectively, offsetting some of the revenue pressures.

This is occurring at a unique time for banking-disruptive innovation is going to be a game-changer for the industry. There is still great opportunity to leap into prominence and increase market share as the reluctant adopters tiptoe into the new reality. The average efficiency ratio for banks has been lingering above 60% for nearly two decades. This is going to change dramatically in the next five years, with many banks we talk to targeting the mid-50s and below.

Consumers are shifting their preferences from in-branch to online for many banking services. Let's examine the changes that are taking place. Nolan's annual Bank Performance Study (analytics reporting line-of-business performance gaps and underlying factors) showed that branch transactions were down more than 15% for the past two years, while overall industry studies show a steady 5% annual decline. This trend is not going to level out anytime soon. One key in capturing real gains is to understand your customers' preferences and the service elements that competitive bank customers embrace and support.

Nearly every target market customer has a smartphone or a tablet. The numbers are growing at a staggering rate in North America, and the "on the net" customers now expect feature-rich banking services. A  survey by Fiserv indicates that the number of customers who used their phones to transfer money increased from 25% to 32% in one year. This, along with the expanding use of remote capture by businesses and consumers, is translating to less demand for in-branch transactions.  It is time to rethink the sales and service components of the physical locations we have invested in to ensure that we are positioning for the dramatic change in customer needs.  We have to develop ways to deliver our services to match our customers' changing behaviors.  Executives do not like to hear terms like "radical redesign," but this mature industry is in the process of a sea change.  Just ask the publishing and news industry executives if they saw it coming.  The shift is a reality, and the innovators in banking are hard at work right now provisioning their bank operations and technology to accommodate customers' new service requirements while lowering operating costs at the same time.