The banking flywheel explained: a complete guide

Introduction

In the last blog in this series, we hinted that a banking flywheel is the secret to digital transformation success, particularly if you’re able to unite both tech and business considerations. But before we can go all-in on that subject, let’s review the concept of a business flywheel in general and then extend those learnings to the banking industry as a whole.

What is a flywheel?

In simple terms, a flywheel is a device that harnesses inertia as it rotates, allowing it to store and eventually release energy. That makes them essential to mechanical engineering, but they’re also extremely valuable on a conceptual level. In fact, many of the world’s top companies are using flywheels to generate ongoing customer and business value, and they've been doing so for quite some time.

Take Amazon, for example. Their business flywheel is world-renowned due to its self-reinforcing loop of processes that allow the company to gain momentum and drive expansion. There’s dozens of guides out there for leveraging this model to drive business success, each with a slightly different take on things. But if you want to hear it straight from the source, check out this Amazon blog about how they’re using their flywheel to accelerate a customer’s digital transformation.

And now, it’s time to apply flywheels to the banking industry.

What is a banking flywheel?

A banking flywheel involves digitally transforming your bank in such a way that it creates ongoing, cyclical value for all areas of the business. Like other flywheels, it’s all about gaining momentum, then using it to power your bank’s operating model and fund new initiatives, eventually creating a self-reinforcing cycle of growth and improvement. Of course, this involves considering both the tech and business sides of things. Check out the chart below for a visual representation.

On the tech side of things, as you reduce your tech debt during your bank’s digital transformation, you’ll free up additional revenue and resources, which you can invest in improving agility and speed, which will eventually lead to a lower cost to income ratio. And on the business side, streamlining your customer journeys will empower you to allocate more funds towards creating differentiating value propositions, resulting in increased digital sales and greater share of wallet. And remember that — spoiler alert — you’ll eventually want to unite the two to help create ongoing tech and business value, as you can see in this hybrid graph.

But let’s come back to this in a later blog.

Thankfully, banking flywheels involve ongoing processes that continue to run in the background as you go, with every step bringing you closer to your eventual banking goals. The more improvements you make in one area of the business, the more resources you’ll have to continue building momentum in your flywheel. The eventual cascade of value is a powerful thing, and you’d be surprised at what it can help you pull off. In fact, McKinsey has said that, if your bank plays its cards right, a flywheel has the potential to help you earn $1 billion in recurring bottom-line impact or even a 10-percentage-point improvement in your cost-efficiency ratio, just for starters.

Building your bank’s tech flywheel

In the next blog, we'll give you a few key considerations for your bank’s tech transformation flywheel. If you're not interested in the tech side of things — or if your role skews more to the business side — feel free to skip that one and jump to the following blog, which covers the business-related considerations. But we'd encourage you to read both for a full, holistic overview.

For more information, check out our Banking Reinvented podcast, where Backbase Founder/CEO Jouk Pleiter dissects similar topics alongside Tim Rutten, EVP/Chief of Staff, and other digital leaders. Stay tuned as they chat about everything from progressive modernization to decomposing your bank’s complexity.