Part 2 of 8 of Building the Bank from the Top Down. The main paper makes the argument; this part holds the detail.
A1. The modernisation trap
Banks in France and Benelux do not lack technology spend. They lack spend a customer can see: most of the budget keeps existing systems running.
This is not an argument against core modernisation. Sophisticated programmes already modernise selected domains while building digital journeys and AI in parallel. The trap is narrower: making customer value depend on finishing the core programme.
A1.1 Run versus change
Nearly 70% of bank IT spending goes to maintaining existing systems and meeting regulatory demands (Accenture, 2026 Banking Trends). Less than a third is left for anything a customer would notice.
Three different costs are easy to blur, so this paper keeps them apart: IT run spend (the 70%), regulatory spend (part of that 70%) and total bank operating cost (the cost-to-income ratio in A1.3). The 70% is a global figure; no national split for France or Benelux is published.
- Evidence: bank IT carries a large run and maintenance burden.
- Hypothesis: that burden limits how much incumbents can redirect towards new customer value. The drift below supports it; a bank's own run-versus-change split is the test.
A1.2 The drift: costs outrun revenue
Over the past 15 years, banking technology costs rose about four times faster than banking revenue, and software costs have grown about 8% a year since 2017 (Accenture). If the trend holds, each euro of maintenance buys less than the one before.
Boards have not felt the drift because interest rates masked it. Across EU banks, income rose about 40% from 2021 as rates climbed, while costs rose about 22%.
[Image to come: EBA Risk Dashboard Q1 2026, p.13 · values read from the chart, approximate]
The ECB started cutting rates in June 2024. The income line is flattening; the cost line is not. As the rate windfall fades, the drift is likely to show in the cost-to-income ratio.
A1.3 Where France and Benelux stand
France has the third-highest cost-to-income ratio of 30 EU/EEA countries, at about 65%. Belgium is about 58%. The Netherlands sits at the EU average of 53%. Nordic banks run at 39% to 48%.
Cost-to-income shows efficiency pressure; it does not by itself show that legacy IT causes it. Staff, branches, AML and the rate cycle all contribute. The claim here is narrower (interpretation): where the ratio is high, there is less room to fund the apex, so every euro of change spend has to be chosen more carefully.
A1.4 Regulation adds to the run burden
- DORA, applied since 17 January 2025, requires ICT risk management, incident reporting, resilience testing and oversight of third-party providers.
- PSD3 and the PSR were agreed in final form in April 2026. The PSR is expected to enter into force in H2 2026 and to apply generally around H1 2028 (a planning assumption to verify against the final text and technical standards), including stricter open-banking API performance and customer permission dashboards (Sopra Steria).
- Anti-money laundering keeps rising: the new EU authority (AMLA) takes on direct supervision of the largest risk-exposed entities from 2028.
None of this is optional, and most of it lands on the same legacy cores. Much of the change budget goes to compliance before strategy is funded.
A1.5 Why each market is exposed
| Market | Cost-to-income (Mar 2026) | Structural feature | Exposure |
|---|---|---|---|
| France | ~65% | Large networked groups (BNP Paribas, Crédit Agricole, BPCE, Société Générale); long fixed-rate mortgage books; dense branch and staff costs | Most exposed: the least free capital for new customer value. |
| Belgium | ~58% | Concentrated market (BNP Paribas Fortis, KBC, Belfius, ING Belgium); among the cheapest banking packages in Europe (KPMG) | Price squeeze. Fees cannot rise to fund modernisation without losing customers. |
| Netherlands | ~53% | Smallest branch footprint in Europe, very high mobile adoption, heavy AML spend (ING, Rabobank, ABN AMRO) (Fitch) | Easiest to wrap: clean digital channels are what an outside agent needs. |
Where to pilot (interpretation). The features that expose the Netherlands also make it the best test-bed. Clean digital channels and very high mobile adoption are what an outside agent needs to wrap a bank, and what an incumbent needs to ship a good PFA quickly. Belgium is a strong second, since the fee squeeze makes the agent's retention value matter most. France is the hardest place to start, with the highest cost-to-income and the most complex group structures (Appendix C4.5). A single-country bank starts where it is, with the same kill criteria (C3.1). A group present in several of these markets should pilot in the Netherlands or a progressive Belgian franchise, then industrialise the platform for its French entities.
A2. The apex: Bain's Elements of Value
The upper tiers of Bain's Elements of Value pyramid are where customer relationships become hard to replace. AI may be the first technology that lets a bank deliver those tiers to every customer, not just private-banking clients.
What "apex" means here. The apex is the customer-facing point where intent, context and value are coordinated: where a customer says what they want, and someone decides how to deliver it. Two frameworks describe it from different sides. On Bain's pyramid it is the upper tiers of value; on a Wardley map (Appendix B1) it is the top of the value chain, the part the customer sees. They coincide when the interface that holds the customer's intent also delivers upper-tier value, but they need not.
Bain sorts what customers value into 30 elements across four tiers: functional, emotional, life changing and social impact (Almquist, Senior and Bloch, HBR 2016). The higher the tier, the harder the relationship is to replace.
[Image to come: Bain Elements of Value, B2C pyramid · selected elements per tier]
A2.1 Why the tiers matter for banks
- More elements, more loyalty. Companies that score well on four or more elements have more than twice the Net Promoter Score of those strong on just one, and more than five times that of those strong on none (Bain, 2018).
- Banking customers already reward the upper tiers. The five elements with the most impact on a bank's NPS are quality, saves time, reduces anxiety, simplifies and heirloom (Bain, 2018). Two of the five sit above the functional tier.
A2.2 Where banks compete today
Most bank change-the-bank programmes target functional value: faster payments, lower fees, fewer clicks, better uptime. These are now table stakes. Instant payments, open-banking APIs and cloud make them cheap for anyone to copy.
A2.3 What AI makes deliverable
Emotional and life-changing value used to need a human adviser who knew the customer's whole situation. That is why only wealthy clients got it. An AI agent with consented access to a customer's full financial picture could offer it to everyone, at close to zero marginal cost:
- Reduces anxiety: "Yes, you can afford this, and here is why."
- Provides hope: "At this rate you can buy a home in 44 months."
- Self-actualisation: the customer feels in control of their financial life.
Calculating "44 months" does not by itself provide hope. Reducing anxiety depends on accuracy, explanation, appropriate uncertainty, the customer's financial literacy and whether their behaviour changes. So the paper treats this as a chain to test, not a given:
| Link in the chain | Status |
|---|---|
| AI can build a personalised picture of a customer's finances | Evidence: technically feasible over consented data today |
| That picture improves decision support | Evidence: the advice-quality literature, plus the bank's own pilots |
| Better support raises perceived control and lowers anxiety | Hypothesis: measure in the first release |
| Lower anxiety changes behaviour (saving, debt, buffers) | Hypothesis: measure over 6 to 12 months |
| Changed behaviour raises retention and share of wallet | Evidence for multi-element value in general (Bain, 2018); unproven for AI agents |
Hypothesis: the provider that reliably delivers the upper tiers is best placed to hold the relationship, and a provider that delivers only functional value risks becoming a supplier. Appendix C6 names the signals that would disprove it.
Previous: Main paper · Next: Appendix B: Complication evidence
Top comments (0)