In a rapidly evolving environment, it is more important than ever for banks to become hyper-relevant to consumers, even as their demands change and grow.  At the same time, banks need to identify and develop new revenue streams, especially as traditional sources of revenue such as overdraft charges and automatic teller machine (ATM) fees begin to dry up.   

It is no secret that digital transformation is not an easy undertaking for banks. An Accenture report recently noted that only 12 percent of banks appear to have fully committed to digital transformation, that four out of 10 banks are in the transformation phase but have not communicated a cohesive digital transformation strategy to the market, and that the remaining 50 percent have not really advanced their digital transformation.  

In this blog series, we will look at how banks can take a new approach to customer engagement and revenue growth by creating and then spinning off independent businesses.  

In the post-crisis environment, new entrants have stepped into the banking and financial services arena.  Companies such as Square and Oak North have reached billion-dollar “unicorn” status thanks to their exceptional products, seamless customer experiences and their sharp brand and marketing execution.   

In the UK alone, Companies House saw a 14 percent increase in technology-related start-ups in 2018 compared to the previous year.  Prodded by this new competition, established companies have experimented with starting up their own new enterprises, including:   

  • The Royal Bank of Scotland’s launch of its challenger bank Bo in 2019, built on an entirely different architecture from that of RBS but leveraging the parent company’s resources;  
  • The Uber launch of Uber Eats in 2015, using a new platform but utilizing the parent company’s resources such as drivers, sophisticated GPS and a large customer base;  
  • Nike’s introduction of personal shopper experiences, exercise apps and a subscription service for children’s shoes, featuring other brands such as Converse. 

These and other incumbents have experienced some success with new enterprises and non-traditional product offerings using new channels. But digital competitors are nimble and unencumbered by legacy technology, so it is hard to maintain an advantage after the initial launch.   

Spinoffs allow banks to accelerate the creation of the right culture, ecosystem and innovation mindset and to focus their efforts exclusively on reaping the benefits of the new business. In the next blog in this series, we will look at some of the reasons for banks to explore this intriguing path to revenue growth.  

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