The future of retail banking
Uncertain times accelerate banking transformation
The US retail banking sector has been transforming at a fast pace, like the rest of consumer financial services. And the COVID-19 crisis has only accelerated consumer shifts toward digital. With a depressed macro environment, banks have little choice but to embrace digital transformation. Explore 10 key shifts transforming the future of retail banking.
Published: 15 January 2021
Tectonic shifts transforming retail banking
For several years, an industrywide transformation has been underway in the retail banking sector. Then the COVID-19 pandemic arrived. All signs lead us to believe that banking will never be the same. Why? While the pandemic has acted as a catalyst and accelerator, the digitization of banking had already reached a tipping point at large banks, with a majority of transactions going digital and more customers engaging with digital budgeting and planning apps, as well as other robo-investment solutions.
Now, the pandemic is dramatically accelerating customer digital adoption and forcing banks to make rapid decisions about the digitization of key processes to support work from home for branch managers and other associates (such as account opening and customer onboarding). Furthermore, as customers face growing financial stress, banks have gained a more prominent role in helping them navigate uncertainty and maintain their financial well-being. We believe that the COVID-19 crisis may ultimately accelerate the transformation of retail banking by as much as a couple of years.
We see three tectonic movements in this transformation that will upend retail banking as we know it:
- Digital banking
- Advice at the center of customer relationship
- Hyper-personalization to a segment of one
This transformation has major implications for just about every dimension of banking—from how a bank engages with its customers to how it manages its talent pool to the ways it can empower customers and associates with new technology platforms and physical infrastructure. More specifically, the transformation manifests itself in 10 major shifts. These shifts are derivatives and enablers of the aforementioned tectonic shifts.
Download our full report to learn more about these key shifts—and how banks can respond to drive competitive advantage.
Banks have an unexpected opportunity. Given the economic disruption that followed the COVID-19 pandemic, banks should be motivated to accelerate retail banking transformation sooner rather than later.
In this economic downturn, banks are seen as a critical enabler of future recovery. Banks that demonstrate empathy for their customers and their associates have the potential to win big if they make an authentic shift from product-centric to customer-centric operating models. This is critical for banks to establish a competitive platform for the 2020s.
A challenging macroeconomic environment with low interest rates and small business credit softness over a probable prolonged period will also add pressure on banks to free up costs. Accelerating the transformation is likely the best way to do it.
The transformation, however, will take many more years. While digital banking is well underway in most corners of the retail banking industry, some banks have taken significant steps to put advice at the center, but the idea of hyper-personalization to a segment of one at scale remains at the earliest stages of exploration. Of course, this transformation will require continued investment in new infrastructure.
Large banks have an advantage via their customer data and magnitude of investment in digital experiences. They also have an unparalleled depth of expertise that can, if focused in the right way, drive sustained innovation. But this advantage may prove to be fleeting; technology companies have the potential to disrupt the picture, especially if they partner with smaller banks for white-label solutions. But in any case, banks of all shapes and sizes will embrace this transformation—or they will disappear.