2020 banking and capital markets outlook
Fortifying the core for the next wave of disruption
Disruptive forces are changing how banking is done. Banks can add customer value by fortifying their foundation and staying true to their core identity as financial intermediaries, matching demand with supply of capital.
A new wave of disruption more forceful and more pervasive than what we have seen in recent years will likely unfold in the next decade. The combined effects of technological disruption, sweeping changes to the nature of work, demographic shifts, climate change, and low economic growth could have serious implications for the banking industry and change the way banking is done. Banking will be more open, transparent, real-time, intelligent, tailored, secure, seamless, and deeply integrated into consumers’ lives and institutional clients’ operations.
With this disruption, though, comes endless opportunity. As the next decade nears, bank leaders should reexamine their aspirations in light of this new reality and fortify their banks’ core foundation on multiple dimensions, including technology infrastructure, data management, talent, and risk management. And despite what happens, banks should remain true to their core identity as financial intermediaries matching demand with supply of capital and trusted custodians of customer assets.
An overview of the 2020 banking and capital markets outlook
The 2020 banking and capital markets outlook offers perspectives on what to expect in 2020 and beyond across multiple domains (regulation, technology, risk, and talent) and seven primary business segments (retail banking, payments, wealth management, investment banking, transaction banking, corporate banking, and market infrastructure):
Regulation: Complex as ever. With global divergence expected to continue, coupled with potential geopolitical instability and the possibility of an economic downturn, banks can best prepare by continuing their compliance modernization journey using the latest governance, risk, and compliance technologies.
Technology: Fixing the basics. Challenged with legacy technology and data quality issues, there might be a need for banks to adopt a back-to-basics approach in 2020 before banks can fully reap the rewards from advanced technologies.
Risk: Leveraging technology to elevate risk management. Banks should contemplate an optimal risk management model, reevaluate the lines of defense to eliminate duplicative efforts, and enhance data architecture to create new data tools and models that can readily sense and combat emerging risks.
Talent: Focusing on the human side of transformation. To take full advantage of technology, banks should focus on redefining and redesigning jobs to empower higher-order work. To cultivate competitive leaders, banks can take a fresh look at the context under which future leaders will thrive.
Retail banking: Platforms are the future. The increasing pressure from a low-yield environment and the potential for an economic slowdown will negatively impact earnings, especially for smaller, less diversified, and consumer lending-focused banks. Banks must continue to increase their fee-based income, as well as focus on cost management, but should not lose focus on accelerating their digitization efforts.
Corporate banking: Enhancing value streams beyond lending. Corporate banks should consider refreshing or enhancing their relationship management capabilities by offering clients a new business proposition via digital products and services. Banks should also consider digitizing front- and back-office functions.
Transaction banking: Need for bold change. In a low/negative rate environment, transaction banks should increase their focus on proactively advising their corporate clients, offering new liquidity solutions and providing data analytics and insights.
Investment banking: More pain before any gain. The rationalization in the investment banking industry will continue, with the sales and trading business undergoing the most notable transformation. Driven by a democratization of markets, technology, and demand for mass customization, the business will split into “flow monsters,” who focus on execution services, and “client capturers,” who specialize in front-office functions.
Payments: Remaining relevant while further disruption looms. Redesigning the customer experience, enhancing value, providing customers with real-time, contextual services, and bolstering security are expected to remain top priorities. There could also be an unbundling of the payments value proposition.
Wealth management: The new core of the banking relationship. Improving client experience will be paramount as clients expect seamless, real-time advice. To achieve this, firms should prioritize front-office digitization and modernization. Enhancing advisor productivity will also be key to cope with margin pressure, meet compliance demands, and provide superior client service.
Market infrastructure: The ongoing search for a new identity. The search for stable returns, higher margins and alternative revenue streams will spur product innovation and promote further consolidation and acquisitions in market data, technology, and analytics. However, cross-border deals might face greater scrutiny.