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Zooming into the future

Accelerating the transformation in the banking industry

The banking industry entered 2017 with an air of cautious optimism amid clouds of policy uncertainty. Over the last year, the clouds have cleared a bit, making way for rays of sunshine. The industry, especially in the United States, demonstrated a pick-up in performance.

December 13, 2017

A blog post by Richa Wadhwani, assistant manager, Deloitte Support Services India Pvt. Ltd.

Return on average assets improved alongside a growing loan portfolio in the last three quarters; net interest margins increased in the backdrop on rising rates; and efficiency ratios improved as banks continued their cost rationalization strategies.1 Banks seem to be in an optimal position to put the pedal to the metal to their long-term growth transformation.

For banks globally, and not just in the United States, 2018 could be a pivotal year in accelerating the transformation into more strategically growing, technologically modern, and operationally agile institutions, so that they maintain market leadership in a rapidly evolving ecosystem.

But looking into the next year would be incomplete without considering the impact of long-term trends. In our new report, 2018 Banking Outlook: Accelerating the transformation, we have identified six broad (or “long-game”) themes that would be critical for banks’ long-term sustainable growth. We also analyze how they may play out in the next 12–18 months.

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Six areas of focus for 2018

The first theme is customer centricity. Being a truly customer-centric organization has long been a holy grail for banks. And banks have made notable strides in moving away from sales-dominant cultures. But clients’ expectations are evolving at a much faster pace, especially considering the superior experiences they enjoy with other industries. Being agile in experience delivery is as important today as targeting the right markets and right customer segments with the right solutions.

Banks can learn from the fintechs, which have set a new benchmark in exceeding customer expectations in financial services, bringing us to our outlook’s second theme: fintechs and big techs. Fintechs have redefined the direction of innovation in banking.2 However, incumbent financial institutions are likely to maintain their dominance, given their scale of operations, regulatory barriers to entry, and customers’ reluctance to switch.That doesn’t mean that banks should rest on their laurels; just the opposite: they should explore ways to enhance customer experience. Banks could replicate what fintechs are doing, collaborate with them, or acquire them. Moreover, banks should take an expansive view of competitive benchmarking to also include the best-in-class fintechs and big techs.

Six long-term themes for growth

  1. Customer centricity
  2. Fintechs and big techs
  3. Regulatory recalibration
  4. Technology management
  5. Mitigating cyber risk
  6. Reimagining the workforce

Our third theme is regulatory recalibration. Banks, at least in the United States, are sensing some stabilization in the new rulemaking, but expectations of a major regulatory pullback may be largely misplaced. In addition, regulatory divergence among national regulators remains a major challenge. Regulatory and political developments in Europe, such as the Markets in Financial Instruments Directive II, Payment Services Directive 2, and Brexit, can have spillover effects for global banks. Banks should integrate regulatory compliance with strategic priorities and apply standards of due care in managing their business.

Technology management is another important theme. As much as banks wish, discarding legacy systems is not an option. Modernizing the core appears a priority on par with investing in a portfolio of new technologies, such as robotics and cognitive automation (R&CA), artificial intelligence, and blockchain. There is a lot to be done and it is not going to be an easy ride. Banks should strike a balance between retaining activities providing competitive differentiation in-house and the ones they can externalize. In 2018, we expect technology units within banks to begin transforming themselves from managing platforms to orchestrating technology and information flows across all the stakeholders.

Mitigating cyber risk is our fifth theme. As threats become more sophisticated and institutions grow more interconnected, funding for cybersecurity continues to increase and there is greater cooperation among banks, counterparties, and regulators, including sharing of information and best practices. But more needs to be done. Cyber risk should be considered in every aspect of change and transformation in the institution; for instance, cybersecurity specialists should be involved in the process of adopting R&CA and open application programming interfaces.

Lastly, reimagining the workforce is the sixth theme for our outlook. Automation is changing the nature of work in banking and the workforce is going to be more diverse than it is today.4 Consider banks having off-balance sheet employees (contractors and freelancers) and robots working alongside human employees. Institutions should brace themselves to manage such diverse workforce. As banks attract new talent with technical expertise, existing employees will have to learn new skills to aid transformation into a digital organization. Banks should also consider fostering a collaborative and inclusive culture that offers a more integrated employee experience.

Read our outlook to learn more about these long game themes and how they are expected to influence banks’ five business lines—retail banking, corporate banking, capital markets, payments, and wealth management—in 2018.

To summarize, executing a strategy of client centricity involves making the right investments in the right people, right skills, and right technologies to gain competitive differentiation. Zooming into the future, I believe 2018 is going to be a big step for banks’ inevitable transformation to a sustainable growth agenda.

What do you think? We welcome you to share your thoughts on the long-game themes and their near-term impact on your organization.

1Federal Deposit Insurance Corporation, Quarterly Banking Profile,, accessed on December 4, 2017.
2Rob Galaski and R. Jesse McWaters, “Beyond Fintech: A Pragmatic Assessment of Disruptive Potential in Financial Services,” World Economic Forum and Deloitte, August 2017.
4John Hagel, Jeff Schwartz, and Josh Bersin, “Navigating the future of work: Can We Point Business, Workers, and Social Institutions in the Same Direction?,” Deloitte Review, Issue 21, July 31, 2017.

QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.

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