Banking: A Brave New World

The new landscape

Things have changed beyond recognition for retail banks. The old certainties have gone, rules have tightened, new technologically savvy players have entered the scene and consumers are spoilt for choice. To stay competitive, traditional European banks must:

• Find ways to maintain profits and raise margins while holding higher regulatory capital
• Compete with new banking and online payment models offered by businesses such as PayPal, Apple Bank and Metro Bank
• Put customer outcomes and behavioural economics at the centre of their business models
• Recognise that consumers can engage immediately with retailers  - and expect banks to be equally responsive
• Face up to stronger non-bank challengers
• Prepare for limited privileged access to customers and fewer opportunities to cross subsidise loss leading services

Overcoming disruption

Regulatory conditions may prevent banks from consolidating. It’s likely then, that they’ll reengineer their own business models and value propositions. This may involve:

• Transforming their cost bases
• Developing distinctive capabilities in markets where they can sustain competitive advantage - this is separate from offering transactional products where profitability will ebb and flow
• Using analytics to exploit customer data and match experiences provided in other industries

In short, we believe banks need to move from cyclical balance sheet optimisation to a long-term vision for a world that has changed immeasurably.