Rethinking retail banking

The art of the possible

Innovation is nothing new, and technologies such as the blockchain, AI and robotics have all, in their time, been hailed as potential disruptors, but with little real impact (yet) – business has largely continued as usual, while further technologies and applications continue to emerge. The present challenge is not how to respond to any specific innovation, but how to recognise the implications of a broad, and more rapidly developing, range of possibilities. Meanwhile, technology also represents new risks, with cybersecurity and data privacy becoming very real current issues.

Volatile macroeconomic and geopolitical circumstances can disturb the very foundations of banking revenues. These aren’t new and, although the sector might weather the specific disruptions of interest rates or energy costs in isolation, the magnitude and timescale of climate change and its effects now represent far more than a brief squall. Whether or not driven by such issues, increasingly stringent and diverse industry regulations also make compliance a more complex set of obligations.

Furthermore, these multiple forces are now converging, and compounded by more immediate factors, such as decreasing margins, ageing populations and changing customer demands. The retail market is also changing, with emerging FinTech offerings that are newly built around today’s technologies and service expectations, so it’s no longer enough to rely on the absence of competition.

Conflicting priorities

Retail banking doesn’t face a single problem to be solved, but a combination of multiple, concurrent priorities to be balanced. For instance, how to improve the customer experience without eroding margins, create tailored offerings without increasing complexity, improve cost/income ratios while complying with regulations, or exploit new technologies and opportunities with an existing infrastructure and brand image. The future is now starting to arrive, in battalions.

To help you see more clearly through this bewildering range of factors, we considered how to deal with today’s conflicting priorities, what the future of banking will look like, and which current initiatives will pave the way for future opportunities – with a particular focus on Europe. As a result, our analysis has identified three key themes for the near future: personalised connections, futureproof core, and sustainable work. These represent three different dimensions – more than a simple pivot – around which banks should transform to be ready, not simply to face the future, but also to embrace it.

The basis for distinction

Banks are increasingly seen as indistinguishable commodity suppliers, giving customers no basis for making a choice, or a change – particularly now that values are becoming more important than value. More personalised customer connections will build services – such as financial health – around customers’ personal needs rather than generic transactions, and shift the brand focus from product to purpose. To enable this shift, banks must break free of their historic focus individual product P&L, and risk putting the customer at the centre.

Established banks carry a burden of legacy that reduces their agility and ability to adapt quickly. Outdated core systems are costly to operate and complex to modify, so “do nothing” is usually the least painful option, but at the cost of efficiency and future opportunities. A futureproof core will take advantage of simpler, more agile systems that are not only more cost-effective, but also create the feasibility for rapid action on opportunities as they arise. Technologies – such as cloud solutions – that underpin such a transformation are already well-established, and the current combination of circumstances means that the shift can no longer be put off until tomorrow. Once in place, such a core will allow banks to offer distinctive products and services, and define themselves better in the market.

As the race for talent speeds up, the money is not enough, and banks must reimagine not only how they attract, equip and retain the future workforce, but also what sustainable work will look like. An effective talent strategy will comprise three key strands: re-architect the work, adapt the workplace, and unleash the workforce. Only by considering these aspects in combination is it possible to recognise how characteristics such as capabilities, culture and competencies will combine to differentiate a successful banking business.
The future of retail banking starts now and, in the coming articles, we’ll discuss each of the above three dimensions in more depth, with research, detailed analysis and recommendations for both strategic thinking and practical action.