This is the first article in our “Banking on success” series on navigating transformation in the financial services industry.

Introduction

The financial services industry is at a crossroads. Technological disruption from advancements in artificial intelligence, the growing complexity of regulatory demands and evolving customer expectations post-pandemic are just a few of the issues organizations are grappling with in 2025.

While bank profits have boomed in recent years, with the 20 largest European banks reporting 110 billion euros in combined net income in 2024, a slowdown in growth suggests the peak is behind us ^[1]. The trend of strong results is expected to fade in the next two years, ^[2] with rising cost pressures and declining interest rates putting a strain on bank profitability. The global economic outlook also remains uncertain, with significant downside risks ^[3].

To truly differentiate themselves in today’s financial services landscape, institutions must not only prioritize digitization and automation in some aspects of their business but must embrace “digital” across the entire customer value chain – from distribution to operations and technical platforms.  A well-executed transformation program, built on a holistic and integrated strategy, can unlock significant benefits by enabling organizations to capitalize on growth opportunities, streamline operations, reduce costs and meet changing customer expectations. Conversely, failing to address transformation challenges can result in inefficiencies, increased costs, organizational misalignment and missed opportunities for sustainable growth

In our experience, transformation programs in financial services often focus too heavily on a few disparate aspects of the business, rather than adopting an integrated approach. Here are three common misconceptions around transformation we have come across in the industry:

Myth #1: Tech can solve all problems 

In reality, focusing on the benefits of tech alone is not enough to drive substantial sustainable change. It is equally important to pay attention to cultural and organizational alignment.

Myth #2: Transformation is a one-time project

In fact, transformation is an ongoing process that requires continuous monitoring, adaptation and alignment with strategic goals.

Myth #3: Cost and growth are mutually exclusive

While cost optimization is crucial, true transformation involves optimizing the organization in order to deliver strategic value. This is a much broader concern than cost alone and takes into account revenue, culture, future growth potential and the alignment of leadership and governance in pursuit of strategic goals. In a modern digital environment, companies that can focus on initiatives that optimize costs while also driving growth stand to benefit the most.

A structured, leadership-driven approach that prioritizes governance, culture and digital execution excellence (full front to back) is the key to a successful transformation in financial institutions. In this article, we will explore critical success factors, common pitfalls, and actionable strategies for driving sustainable growth and efficiency through transformation programs.

The need for transformation

Falling interest rates, macroeconomic pressures and increasing regulatory demands are putting pressure on financial institutions, compressing margins and raising the bar for achieving cost efficiencies while maintaining compliance. At the same time, the rise of artificial intelligence (AI) and automation, combined with growing customer expectations of speed and efficiency on digital platforms, are hastening the need for transformation.

Our peer benchmarking analysis of major financial institutions highlights critical efficiency gaps across the industry, emphasizing the need for banks to adopt strategic measures to remain competitive. Below are our biggest takeaways for institutions seeking a successful transformation:

1. Narrowing gaps in key metrics: Our analysis shows that many banks trail best-in-class peers in metrics such as cost-to-income ratio (CIR) and return on tangible equity (RoTE), underscoring the need for operational and cost efficiency improvements.
2. Building scale and scope: Leading institutions leverage standardized technology and economies to drive efficiency and competitiveness, offering a clear roadmap for others to follow.
3. Digital transformation: Benchmark-setting institutions focus on digitization and automation to streamline operations and enhance customer experience, while increasingly adopting emerging AI technologies. Streamlining commercial operations, for example, is critical for achieving greater efficiency and cost optimization.

As we have said above, transformation is not solely about cost cutting. However, given the rising cost pressures in the banking sector, cost transformation initiatives are increasingly relevant. These involve significant investments in technology, digitalization, and operational efficiency to streamline processes and reduce costs. Areas such as optimizing resource allocation, enhancing digital channel capabilities and further streamlining operations can help financial institutions mitigate cost pressures and support long-term growth. By addressing these challenges proactively, banks can sustain profitability and maintain a competitive edge in a shifting landscape.

Key Success Factors

Transformation works best when a holistic approach is taken, with inputs across the board to ensure strategic alignment with long-term business objectives and risk mitigation measures. Based on our extensive experience working with financial institutions to execute successful transformation programs, we outline four key areas of focus:

1. Leadership and communication

• Leadership must make transformation a top priority, ensuring alignment across all levels of the organization. This sponsorship of the program by top management and clear communication across the board.
• Top management must lead by example, as role-modeling at the highest levels fosters a culture of accountability and commitment.

2. Governance and control

• Establishing a robust, structured governance framework, including a steering committee and project management office (PMO), ensures alignment and accountability.
• Clear escalation mechanisms and tracking methodologies are also essential for managing interdependencies and bottlenecks.

3. Cultural alignment

• Defining and embedding a culture of operational excellence and innovation (including motivating employees by rewarding new efforts, ideas and pivots) supports strategic goals and is critical for long-term success.
• Aligning organizational values, decision-making processes and performance metrics ensures that any changes made are sustainable.

4. Execution excellence

• A relentless focus on execution, with clear accountability and rapid implementation cycles, drives measurable results.
• Prioritizing quick wins demonstrates early success and helps maintain momentum in the transformation program.

5. Truly digital by design

• Focus on transforming existing legacy assets and capabilities into digital ones by design rather than attempting bolt-on measures as short-term fixes.
• Create new ground-up patterns and processes that are optimized for seamless customer experiences.

How A&M can help

Our team at A&M brings over four decades of dedicated experience serving the banking and capital markets sector. With a deep understanding of the industry’s nuances, we offer a comprehensive suite of tailored services aimed at helping clients create value, seize opportunities, optimize operations and mitigate risk. Whether it is driving digital transformation, enhancing operational efficiency or addressing cost pressures, A&M has the right expertise. We are also equipped to support complex initiatives such as carve-outs and post-merger integrations. These efforts can be instrumental in unlocking synergies, streamlining operations and achieving strategic objectives, ensuring that transformation programs deliver sustainable value and long-term success.

Conclusion

Transformation in financial services requires a holistic approach that integrates leadership, governance, cultural alignment and execution excellence. By addressing these critical areas, financial institutions can navigate transformation successfully and achieve sustainable growth.

In the next few articles of this series, we will look at high-impact initiatives that can deliver quick wins and maintain momentum, offer survey insights on transformation priorities, address the critical but underestimated role of culture in sustaining transformation and explore future trends such as AI integration, digital transformation and regulatory changes shaping the next decade of financial services. Additionally, we will examine how transformational M&A can be a game changer, enabling institutions to achieve scale, unlock synergies and accelerate their strategic objectives in an increasingly competitive landscape.

Stay tuned for more actionable insights and thought leadership to help financial institutions achieve long-term success through transformation.