A transformation is sweeping through the retail banking sector, and major names are beginning to rethink their operating models in order to prepare for a more consumer-focused future
No other segment of banking is more closely tied to the whims of the consumer than retail banking. Here is an industry that on a daily basis features in the lives of billions across the globe, but has come up against the pressures of rising customer expectations, technological advancements, shifting demographics and changed regulatory requirements. Faced with a torrent of fresh challenges and forced to deliver in a new operating environment, retail banking must reshape and innovate to equip itself more appropriately for the future.
As part of the World Finance Banking Awards 2015, we have taken a look at what it takes to succeed in today’s retail banking climate. With the industry at a crossroads, the retail segment must hone its focus on the consumer more completely than ever before if it is to match the standards shown by the winners of this year’s Banking Awards, and pave the way for generations to come.
“Many have predicted the fall of the traditional bank, as disruptive new entrants win [market] share by offering a better customer experience through new products and channels”, according to a PwC report entitled Retail Banking 2020 – Evolution or Revolution. “Yet, despite the emergence of new competitors and models, we believe the traditional bank has a bright future – the fundamental concept of a trusted institution acting as a store of value, a source of finance and as a facilitator of transactions, is not about to change.”
True, the transformation of financial services, particularly in banking, has given rise to a host of fresh faces whose operations are slimmer and more technologically advanced than the powers of old, yet the steps taken by the established banks have done much to stave off the advances of the new kids on the block – so much so that some of the more storied brands in the retail banking landscape are among the most forward-thinking in the industry.
What has emerged is a model fit for future generations, as banking repositions itself to thrive in a post-financial crisis climate, focused on profitability rather than revenues. “Banks will have to reinvent themselves,” according to EY’s Global Banking Outlook for 2015. “Those that do, developing new products and leaner, more flexible business models for the future, will be able to deliver the returns their investors are looking for, even against the headwind of low global economic growth.”
Economic growth in the developed world leaves a lot to be desired, and even in fast-growing emerging economies, the rate of expansion has slowed, leaving opportunities few and far between. To gain an edge in today’s competitive landscape, retail banks must sniff out what possibilities remain and do more to satisfy customers for whom convenience and personalised services have become the norm. This new operating environment asks much of
retail banking. Only by looking to underserved sectors of society and pioneering new products and services can forward-thinking banks better compete in today’s market.
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One development that has taken hold recently is a commitment to satisfy lofty customer expectations, and to do so by employing new technological solutions (see Fig. 1), namely data analytics capabilities. “Banks, especially some larger institutions, expanded their use of analytics for deeper customer insights. Investments in mobile offerings continued to receive top priority, but upgrades to core systems were not as widespread a phenomenon as expected. Meanwhile, creating a fully differentiated customer experience remains an ongoing journey for most institutions”, according to Deloitte’s 2015
In this digital world, new service providers have emerged, promising customer-centric alternatives and easier means of accessing personal finance. The development means there are new opportunities, though also challenges. PwC findings show that 55 percent of global banking executives believe these new players pose a threat to traditional banks, while 31 percent believe these same names present new partnership opportunities. Opinions on the subject are divided, though this new focus on the customer is highly characteristic of the changes that have gripped retail banking recently (see Fig. 2).
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With new customers proving increasingly difficult to come by, and demands sometimes bordering on the undeliverable, the need to compile and process complex customer information is proving a key point of differentiation. “The retail banking industry faces a period of transformation. Those that embrace the opportunities that the technical revolution presents will differentiate themselves from their competitors”, reads Grant Thornton’s retail banking outlook. “However, building a long-term strategy during this time of economic uncertainty and increasing economic demands will be challenging.” With the transformation still very much underway and customers unsure about what they can expect from high street banks, a deeper understanding of changing consumer sentiments must first be ascertained.
“In the banking industry, connecting consistently with customers will require that banks understand the demographics of their markets, including the characteristics that define their best customers, and knowing which products and services they are willing to pay for”, reads KPMG’s banking outlook. “It also means developing the right distribution channels, as consumers increasingly use more than one channel.”
This same philosophy applies to digital banking as a whole, and where major names have taken strides to boost their big data competencies, they must seek also to apply this principle to areas that could benefit from technological gains.
The drive to digitise
Returning to the twin issues of stringent regulatory ties and tighter margins, the value of technology in cutting costs and in boosting productivity cannot be ignored by retail banking. The drive to digitise has occupied an important spot on the industry’s priority list in recent years, not least 2014, as traditional players look to incorporate consumer analytics, security, mobile and internet banking to keep pace with new market entrants.
Doing so has brought a swift and decisive end to the standalone solution that is bricks-and-mortar banking, and by optimising its distribution channels and streamlining operating models, the retail banking segment is a much-changed proposition. Still, the transformation is far from complete, and there is work to be done before major names in retail banking can compete with their technology-first counterparts. The sector requires only that major players, much like those contained in our banking awards, continue to push the envelope, and do what they can to prepare for a future where technology is king and innovation imperative.
The winners of this year’s awards are important because they offer an insight into the major steps taken towards this end. Should others take heed of their accomplishments, the retail banking sector will fast become a playground for innovation.