The Changing Face Of Retail Banking By 2020

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The face of the banking industry is changing today, with the advent of new technologies and channels. There’s obviously a lot more competition, with the onset of new disruptive changes happening around. The main forces bringing about this change include customer expectations, regulatory requirements, demographics, technology, new competition, and shifting economics of the industry.

To understand how emerging macroeconomic, social, and regulatory trends will impact the financial services industry, analyst firm Pricewaterhouse Coopers maintains an ongoing global research effort called Project Blue. What stands out from the study, is that 70% global banking executives need to closely understand what the global trends are, impacting the banking and financial industry, and create the winning strategy accordingly, as mentioned in a report by PwC. [Read the full report here]

While there are significant shifts that require ongoing monitoring, six fundamental priorities emerged that are critical for a vast majority of the players.

– Developing customer-centric business models

With developments taking place, financial and banking majors have gone ahead with product and service development, but the understanding of what their customers really want and need, is still a few steps back. By 2020, that s supposed to be changing. With the use of technology and data mining techniques, the understanding of the customer will be far more clear. This way, the product and services mix will be clearer to be laid out, and the operational risks will be controlled better. According to the PWC model, 61% banking executives admitted that customer-centric models are essential, and that 75% are actually making investments in this area.

– Transforming the distribution channels

As seen before, banks with the highest number of branches have typically dominated individual markets. But when 2020 arrives, there will be a change and direct banking will be the norm, and branch banking systems will change a great deal. Most CTOs/CXOs in financial majors will be creating a scenario where customers will be able to avail services anytime anywhere, and all channels will be much more unified. In the physical banks, the formats would be changed, and there will be a more digitized interface for customers to work with. During this transformation, there will be the involvement of 3rd parties, which will bring in expertise, but will drive down costs and driving sales instead. In terms of number, the study showed 59% respondents, expect branch to increasingly diminish, and 48% expect banking itself, to change significantly.      

– Simplifying operations and business models

In an extension of what was earlier, banks and financial companies have created business and operational model, which are expensive and complicated as well. At one end, the customer expectations are rising, regulators are getting increasingly vigilant, and shareholder demands on better returns are also on the horizon. If B&FS companies looked at the customer as being the center of their businesses, then products, channels, organization, and operations all will need to simplify and be changed. 53% of executives believe that simplification is important, and as much as 70% are even making investments in this space, but only 17% feel well prepared enough.

– Availing the information advantage

In a way, this point lays emphasis on the importance of advanced data analytics and the methodology of using the information derived, for the advantage of the business. According to the PWC study, “Leading players will develop advanced analytics capabilities to integrate this vast library of data, analyze it and create actionable insights. 57% of bank executives consider these capabilities to be very important (with 92% considering them very or somewhat important). Three-quarters of institutions are making investments. Yet, only 17% believe they are very well prepared.” With 2020 approaching, will be using data analytics in multiple areas, which include customer experiences, underwriting, pricing, risk management, and even cost management. Few banks, among the leaders in the market, will actually end up mastering the art of using data analytics to transform themselves as institutions.

– Being a center of and fostering innovation process

“ Innovation within the banking industry is considered to be somewhat or very important by 87% of respondents, yet in stark contrast, only 11% believe they are very prepared”; this statement from the PWC points to the traditional image of banks, where innovation is still quiet a distance away, thought he picture is changing, and the pace of adoption of innovative methods are on their way. With the time to become, BFS companies will need to foster innovation within their ranks, by enabling the techno-financial talent to play their role in the mix. Even external partnerships will have a role to play here, as executives would need a distinct innovation based mindset.

– Managing capital, risks, and regulation more proactively

64% of those considered under the PWC study have mentioned, that managing the trio of capital, risks, and regulation is extremely important, but only 22% feel that they are adequately prepared for the same. In other words, these figures prove that the banking and financial sector is under increased scrutiny, ever since the 2008-2009 financial meltdown that affected the entire world, in more ways that what one could think of. Due to that, the regulators of the industry have become over cautious in many ways, and are looking at most financial institutions, in a more scrutinized manner, often keeping a tab with stringent regulations.

At a time when innovation is the need of the hour, when change is imminent for survival and growth, at the same time, keeping tabs with changing regulatory frameworks, it is something mostly under the purview of the companies themselves. Functions like compliance, reporting, and underlying business processes need a closer watch, and executives are doing all they can to take a more comprehensive view.

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