Retail Banking 2020 Evolution or Revolution?
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Retail Banking 2020
Evolution or Revolution?
Powerful forces are reshaping the banking industry. Customer expectations, technological
capabilities, regulatory requirements, demographics and economics are together creating an
imperative to change. Banks need to get ahead of these challenges and retool to win in the next era.
Banks must not only execute on today’s imperatives, but also radically innovate and transform
themselves for the future.
www.pwc.com/banking
Contents 03 Foreword 05 Executive summary 08 Impact of global macro-trends 10 Rise of state-directed capitalism 11 Technology will change everything 14 Demographics changing priorities and opportunities for growth 15 Social and behavioural change 17 Potential disruptors to this future 18 Evolution and disruption – an imperative for change 19 Six priorities for 2020 22 Developing a customer-centric business model 25 Optimising distribution 28 Simplifying the business and operating model 32 Obtaining an information advantage 35 Enabling innovation, and the capabilities required to foster it 39 Proactively managing risk, regulations and capital 41 Conclusion 42 Contacts
Foreword
Bob Sullivan
PwC (US)
Global Banking and Capital Markets Leader
We believe that retail banking will look very different in 2020 To produce this paper, we integrated insights
from PwC teams worldwide. We surveyed
than it does today.
560 client executives from leading financial
institutions across 17 markets regarding
the challenges and opportunities of this
Many have predicted the fall of the relentlessly against today’s imperatives, but evolving marketplace and their plans to John Garvey
traditional bank, as disruptive new entrants will also innovate and transform themselves respond. We developed a point of view PwC (US)
win share by offering a better customer to prepare for the future. This future will regarding how mega-trends will impact the US Banking and Capital Markets Leader
experience through new products and require institutions to be agile and open, future of banking, using PwC’s proprietary
channels. Yet, despite the emergence of new ready to explore different options in an Project Blue framework. And we developed
competitors and models, we believe the uncertain world. six priorities for retail banks today to help
traditional bank has a bright future – the ensure their future success.
fundamental concept of a trusted institution So is this change a revolution, or an
acting as a store of value, a source of evolution? In truth, it is both. All the We look forward to engaging in a provocative
finance and as a facilitator of transactions signposts for change are here. Many players dialogue with you and your colleagues, Justo Alcocer
is not about to change. However, much of are innovating and experimenting with new going forward. We would be pleased to PwC (Spain)
the landscape will change significantly in products, delivery channels and analytics. share additional points of view, information EMEA Banking and Capital Markets Leader
response to the evolving forces of customer The industry has historically changed slowly and insights, as appropriate. Feel free to
expectations, regulatory requirements, – evolutionary change. And the changes reach out to one of us or your existing PwC
technology, demographics, new competitors we envision are less about imagining contacts to start the dialogue.
and shifting economics. some unknown future, and more about
implementing and integrating all the things
Banks need to choose what posture to adopt we know today (see the sidebar on the next
against this change – whether to be a shaper page). Yet the pace of change is increasing Antony Eldridge
rapidly – banks that fail to shift gear risk PwC (Singapore)
of the future, a fast follower, or to manage Asia-Pacific Banking and Capital Markets Leader
defensively, putting off change. Staying being left behind. And if any institution could
the same is not an option. We believe that truly master all the priorities we set out in
the winners in 2020 will not only execute Section 3, it would be revolutionary indeed.
PwC Retail Banking 2020 3
Retail Banking Anna, 56, boards a high-speed train for her
commute to one of the world’s emerging
She then watches a message from the bank’s
leading education expert, suggesting it is
The next day, Anna accepts an invitation for
a video conversation with her bank business
2020 – Evolution megacities. She settles in and blinks twice, time to set up a university savings account adviser. The bank had been monitoring
activating the display in her glasses. She is for her 13-year-old son. The adviser asks the favourable social media coverage Anna
or revolution? Will authenticated by retina scan, and reviews her whether Anna expects her son to attend the has been receiving and concluded that her
you be ready to serve messages. new flagship online university, or a much business might need additional services.
more expensive residential programme The business adviser has already arranged
this customer? A message from her financial adviser notes overseas. She quickly outlines the estimated for a commercial estate agent and loan
they sold her holdings from a recent IPO and costs and benefits of each, taking into account officer to join them, and they discuss Anna’s
transferred the proceeds into a new African Anna’s age and planned retirement at 70. questions and offer advice on a range of
high-tech fund. She made this decision after She recommends the flagship, and suggests small business topics. She shares that she
consulting with her financial adviser and supplementing her son’s education with less is thinking of expanding her business into
reviewing recommendations from several expensive summer programmes in Mumbai, additional locations, and they explain the
independent investor analytics engines San Francisco and Beijing. Anna agrees, and difference between the bank’s products and
she reached through her bank’s wealth the adviser seamlessly sets up the savings the government small business facility, which
management platform. account and the auto-deposit. offers less service, but a lower rate of interest
and longer repayment periods. Also, Anna is
At lunch, Anna browses the local electronics passionate about environmental protection.
display, where the latest holovision catches The bank recognises this, and through its
her eye. A quick scan from her glasses returns own programmes and partnerships, is able
customer recommendations, coupons and to present an offer where Anna’s use of the
financing offers from multiple providers bank’s products results in direct donations to
including her own bank (which itself has Anna’s favourite charity. She accepts – happy
instantly reviewed the returns from the she has found a bank that really seems to
scan to ensure their offering is competitive). understand her.
She makes her choice and completes the
purchase, using a new peer-to-peer lender
that offers a more competitive rate, due to a
lower cost structure, thanks to a lack of legacy
infrastructure and a less stringent regulatory
regime.
4 PwC Retail Banking 2020
70% of global bank executives believe it is very
important to consider how macro trends will
impact the banking industry in 2020
Executive summary
Powerful forces are shaping the industry
Powerful forces are transforming the retail banking industry. Against this background, 70% of global Executives also differ in their views by
banking executives believe it is very geography. For example, fewer US executives
Growth remains elusive, costs are proving hard to contain and ROEs
important to form a view of the banking think it important to form a view of the
remain stubbornly low. Regulation is impacting business models market in 2020 – to understand how industry in 2020 (61%) than executives in
and economics. Technology is rapidly morphing from an expensive these global trends are impacting the the emerging markets (79%). And many
challenge into a potent enabler of both customer experience and banking system in order to develop a more US executives view non-traditional
winning strategy. new market entrants as a threat (71%), than
effective operations. Non-traditional players are challenging the executives in Asia (42%), where more view
established order, leading with customer-centric innovation. New Executives are divided as to who will be the them as an opportunity (44%) for partnering
service providers are emerging. Customers are demanding ever higher primary beneficiaries of these trends. Just and prospering together. This divide between
over half (54%) believe that large banks will developed and emerging market thinking is a
levels of service and value. Trust is at an all-time low. be the winners in 2020. The other half (46%) theme throughout the survey.
see smaller banks capturing share through
increasing differentiation. Executives are In Section 2 we address these questions
also divided as to the threat posed by non- and concerns, and consider how global
traditional new players: 55% believe they macro-trends will impact the retail banking
pose a threat to traditional banks, while industry.
31% believe they present innovative
partnership opportunities.
Fewer than 20% of executives
feel well-prepared for the future
55% of bank executives view non-
traditional players as a threat to
traditional banks
PwC Retail Banking 2020 5
Figure 1: Importance of considering the banking market in 2020 Today’s challenges Bankers tell us they are working harder than
Unsurprisingly, nearly all bankers surveyed ever before to address these challenges, and
view attracting new customers as one of are consistently being asked to do ‘more
their top challenges over the next two years with less’, given the continued cost pressure
– banks are hungry for growth, and finding facing the industry. ‘Execution, execution,
Emerging
Markets new customers is the first response of a execution’ is the mantra, particularly for
banks in the US and Europe.
61%
USA Europe
79% good product banker. However, banks also
67% recognise the need to deepen their customer
relationships and focus more on specific Priorities for 2020
Asia-Pacific customer outcomes. Hence, enhancing However, the pace of change is increasing
71% customer service is the number one and banks need to do even more to ensure
they are well-positioned to succeed in the
investment priority for banks, globally.
future. Through our proprietary research
The impact of complying with growing and and insights from client engagements, we
changing regulation remains a top challenge have identified six priorities for success in
– indeed the number one challenge for US 2020. They are:
Source: PwC Banking 2020 Survey
and European banks. Unsurprisingly, this
is a top investment priority for banks in 1 Developing a customer-centric business
these regions. Bankers also tell us informally model
that they are still struggling to get ahead
Figure 2: Non-traditional players – Threat or opportunity?
of this challenge and develop a proactive
2 Optimising
distribution
stance with their regulators – to stop seeing
regulation as a burden and start weaving
US 3 Simplifying
business and operating
regulatory compliance into the fabric of
models
their operations.
Europe
In the more rapidly developing Asian and 4 Obtaining
an information advantage
emerging markets, where big, established
Emerging Markets banks have less dominance, bankers report 5 Enabling
innovation, and the
that attracting talent and retaining existing capabilities required to foster it
Asia-Pacific customers in face of fierce competition
and new market entrants are also top 6 Proactively managing risk, regulations
challenges. R&D, innovation and new
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% and capital
product development are the top investment
n Threat n Threat, only if inferior technology n Opportunity priorities in these regions. Despite broad agreement that they are all
very or somewhat important, fewer than
Source: PwC Banking 2020 Survey
20% of executives feel that they are very
6 PwC Retail Banking 2020
Figure 3: Top 3 challenges Figure 4: Top 3 investment priorities prepared against these priorities, and
only a similar percentage report that
USA USA they are making significant investments 90% of
in these areas.
Regulatory compliance 47% Regulatory compliance 56% executives
Banks universally agree that they are
hindered from addressing these priorities believe that
35% 46%
Attracting new customers Enchancing customer service
by financial, talent, technology and each of these
organisational constraints. Banks need
Increasing customer profitability 33%
Implementing new
technology
30% to take aggressive action to ease these priorities is
Europe Europe
constraints, and manage themselves in a
more agile manner to enable innovation
important;
and transformation, while preserving only 20% of
40% 56%
Regulatory compliance Enchancing customer service their optionality to capitalise on market
opportunities and address unexpected
executives feel
Attracting new customers 33% Regulatory compliance 36% challenges. very prepared
Implementing new
To succeed in this rapidly changing to address them
Loss of trust 31% 27% landscape, banks need to have a clear sense
technology
of the posture they wish to adopt – whether
Asia-Pacific Asia-Pacific to shape the industry, rapidly follow the
leaders, or manage defensively, putting
Attracting and retaining talent 38% Enchancing customer service 51% off change. And they need to have a clear
strategy to deal with these challenges
Attracting new customers 34% R&D and innovation 40% and address these priorities, including
considering partnerships with third parties
and applying lessons from other industries.
New market entrants 25% New product development 34%
Of course, the level of focus on each of them
depends both on a bank’s starting point,
Emerging Markets Emerging Markets
and its unique strengths and challenges.
However, each priority is important, and
Attracting new customers 47% Enchancing customer service 47%
success will come from a balanced execution
across them – and a balance of tactical
Attracting and retaining talent 43% R&D and innovation 36% initiatives and longer term programmes, all
coming together as an integrated whole.
New market entrants 29% New product development 32%
We discuss this further in Section 3.
Source: PwC Banking 2020 Survey Source: PwC Banking 2020 Survey
PwC Retail Banking 2020 7
Impact of global macro-trends on retail banking To help frame the discussion of what banks should do (see Section 3, ‘Six Priorities for 2020’), we first consider the macro-trends that are shaping the global financial landscape, building upon PwC’s substantial research effort in this area, Project Blue*. We framed this research around the following seven trends: global instability, demographic change, technological change, social and behavioural change, the rise and interconnectivity of the emerging markets, the rise of state-directed capitalism and the war for natural resources. * For further information on Project Blue, please visit www.pwc.com/projectblue 8 PwC Retail Banking 2020
Of course, each of the macro-trends has
Figure 5: Project Blue – Framework and impact on banking landscape
a different impact on the retail banking
industry, as well as on each specific
institution. In this section we consider,
Global Instability
in depth, the following four mega-trends
Adapt
Regulatory environment Fiscal pressures Political and social unrest we consider to have the greatest impact,
although our thinking is informed
by them all:
• Population growth • Changing family structures
Demographic
discrepencies • Belief structures • Rise of state-directed capitalism –
change
• Ageing populations regulation reshaping the industry and
dictating business models.
Project Blue Framework
• Disruptive technologies • Technological and scientific
Technological
change
impacting FS R&D and innovation • Technology will change everything –
• Digital and mobile
becoming a potent enabler of increased
service and reduced cost; innovation is
• Urbanisation • Changing customer
Social and behavioural
• Global affluence behaviours – social media
imperative.
change
• Talent • Attitudes to FIs
• Demographics – changing priorities and
Plan
Rise and interconnectivity • Economic strength • Capital balances
opportunities for growth.
of the emerging markets • Trade • Resource allocation
(SAAAME) • FDI • Population • Social and behavioural change – rising
customer expectations and the need to
• State intervention • Investment strategies regain public trust.
Rise of state-directed
• Country/city economic • SWFs/development banks
capitalism
strategies We also consider potential disruptors to
those trends, and their implications.
• Oil, gas and fossil fuels • Ecosystems
War for natural
• Food and water • Climate change and
resources
• Key commodities sustainability
Source: PwC Project Blue
PwC Retail Banking 2020 9
Rise of state- Nation-states are seeking to better control
their financial systems and the institutions
•
More local markets will close to
outsiders. Traditionally restricted
•
Regulated banking assets will be
significantly smaller than today
directed capitalism – within their borders, as they learn that a markets such as China, India and Korea (adjusted for inflation and GDP), due to
global banking system becomes local in a will be joined by others that limit market the regulatory attempt to significantly
regulation reshaping crisis. Stability is paramount, and central share for foreign institutions through reduce ‘sovereign risk’ through stronger
the industry and banks are heavily involved in managing local regulation and subtle preferences capital requirements. The shadow banking
markets. Regulation is increasingly favouring domestic institutions. This, in industry – absent changes to the rules –
dictating business prescriptive and local in nature. At the same turn, will limit the ability of emerging will continue to grow to fill as much of
models. time, governments are seeking greater
influence over the financial system to
market financial institutions to penetrate
markets outside of their home countries.
the gap as it can, perhaps merely pushing
future problems outside of the regulated
advance various policy objectives including The exception to this will be that regional industry. The pressure on the regulated
the fight against terrorism, promoting and bilateral trade pacts concluded industry will be particularly intense
lending to certain favoured sectors (e.g. over the next five years will drive select in those markets with growing
students, housing, small businesses, opportunities for certain institutions appetites for credit.
national champions), financial inclusion where financial services are included in
and supporting the housing markets. These the scope of the agreements. • B
anking sector size will be more closely
trends, in our view, have a number of correlated to GDP than today. By 2020,
years to play out and impact the nature •
Governments will influence through smaller countries with large institutions
of the industry in 2020. Specifically, we regulation rather than ownership. They will have shrunk their banking sectors,
predict that: will move to privatise state-owned banks relative to GDP, through a combination of
as the impact of politically driven credit asset reduction efforts, business sales and
•
The playing field shifts from global to decisions in the aftermath of the financial subsidiarisation. At the same time, there
local. National and regional institutions crisis is more fully exposed. Schemes will be significant growth
will dominate. Developed-world banks, for lending and government-owned of domestic banks, particularly in
especially in the EU, have been in retreat financial institutions that channelled emerging economies.
to their home markets since the crisis, credit largely based upon policy objectives
and we expect this to continue. Historical will have absorbed significant losses on •
Leading institutions will practise
perceived advantages of global banks, such non-performing loans by 2020, with proactive regulatory management.
as economies of scale (oft sought, yet rarely negative impact on both capital levels and Thirteen years after the financial crisis,
captured), will become outweighed by political support for continued aggressive the relationship between banks and
local regulatory constraints. Local lending expansion. At the same time, banks their regulators will have reached a new
activities will need to be matched more will be increasingly pressured on various equilibrium as banks more fully integrate
closely with in-country deposits. Global social responsibility fronts, including the policy objectives of governments and
banks will be forced to compete on a local fees, affordable housing, and their regulators into their day-to-day
basis – they will focus and double-down on anti-money laundering. business.
fewer markets where they can gain scale,
and they will exit markets where they
10 PwC Retail Banking 2020 are subscale.Technology will In the last few years technology has rapidly
evolved – big data, cloud computing,
management businesses. In 2020, we predict
the following:
will start to struggle, due to structurally
uncompetitive economics. In heavily
change everything smartphones and high bandwidth are all now banked markets such as the US, we expect
commonplace – and we’ve reached a tipping •
Every bank will be a direct bank; at least 20% fewer branches by 2020, and
– becoming a potent point. Analogies with other industries (e.g. branch banking will be undergoing that this trend will continue to accelerate.
enabler of increased music and video distribution, print media) a significant transformation. As
technology enables every aspect of
Emerging markets will continue to
suggest that ‘digital’ will drive huge shifts develop their physical footprints, using a
service and reduced in industry value – compressing revenues, banking to go online, and as cash growing range of points
usage falls away, traditional branches
cost; innovation is enabling new attackers, redefining service
and crippling the laggards. are no longer necessary. Given their
of presence.
imperative high-fixed cost, branches will need to •
Competitive reach is no longer
We are in the middle of a multiwave become dramatically more productive, determined by branch networks,
trend where digital is first focused on or significantly less costly. Banks have rather by banking licences, technology
optimising current products and services. already reduced staff levels, closed the and advertising budgets. When every
The second wave, where enhanced data most uneconomic branches and started aspect of banking can be done online,
capture and analysis drives more targeted experimenting with new branch concepts. a bank’s target market and competitive
customer offerings and improved services is We expect these trends to accelerate, as arena is no longer defined by its physical
underway. Mobile banking will increasingly customer expectations and behaviours footprint, but by its technology, regulatory
disrupt distribution models (e.g. instant evolve. Branches will remain, but take boundaries and marketing budget. New
videoconferences with product experts) many forms, from flagship information, entrants will no longer have their pace of
and the payments industry (e.g. P2P mobile advisory and engagement hubs (offering expansion constrained by the availability
payments). Advances in security and education, financial advice, full-service of acquisition targets and/or prime retail
verification will enable all aspects of sales, capabilities and community offerings) locations. In developed markets such as
service and delivery to be conducted online. to smart kiosks (offering service, sales, the US, for example, top regional banks
Technology is making it easier for customers cash and video contact with a range of could become viable national players
to switch banks, making relationships much specialists). Leaders will rapidly improve and ambitious foreign entrants with
less sticky. This will drive the third wave, their footprints, reducing branch size resources but without footprint could
where banks and their partners develop and costs, introducing new models and finally compete on a larger field. New
sophisticated profiles on each of their migrating transactions to low-touch entrants could grow rapidly, potentially
customers. digital channels. Digital capabilities creating dozens of new competitors and
will improve, so that branch service refragmenting the landscape. Further, we
The pace of innovation will continue to officers and bank customers use the will see ever-more competition from non-
increase, and leading banks will need to same platforms, with the same look and bank players. Branding and marketing will
enable or leverage this innovation. All of this feel. The human touch will always be be more important than ever before.
will accelerate the evolution of leading banks available, just much more through digital
into customer-centric information and risk- channels. Banks that are behind this trend
PwC Retail Banking 2020 11• S
urviving banks will be low-cost •
The smart device will grow in • I ndustry utilities will arise in nearly
Technology will producers, with nearly every product
profitable on a stand-alone basis.
importance, and take its place
alongside cards as the primary
every area of infrastructure (similar
to the US ‘bank in a box’ vendors
change everything Conventional wisdom suggests banks medium for consumer payment. The such as Fiserv), as cost pressures and
that engage certain customer segments customer will be able to select between technological advances force banks
– becoming a potent holistically with targeted offerings, account providers (e.g. credit providers, to focus on customer service and
enabler of increased advice and solutions will maintain high deposit accounts) or locally stored risk management, rather than the
margins. We agree. There is a premium value. Acceptance will be universal development of undifferentiated and
service and reduced customer segment that will find this (with common cross-network payment expensive processing and payments
cost; innovation is holistic approach very valuable. However,
new entrants will be offering similar
protocols) and value-transfer instant.
Multi-currency capabilities will become
infrastructures. A number of large banks
with processing scale and efficiency
imperative high-value services, unencumbered by the normal. Customers will be able to make will commercialise all or part of their
massive legacy cost bases of traditional contact payments or send funds to operations and technology departments
banks. So, even those banks targeting any other unique identifier (e.g. email and offer services to other banks. Groups
the highest-value customer segments will address, phone number, bank account, of banks might partner to achieve scale
need to restructure their cost base, while credit card number, etc.). Transfers of and find best practices, combining
at the same time investing in areas such as locally stored value may be both traceable their infrastructure into joint ventures.
customer analytics and compliance data. or untraceable, depending on service Existing technology service providers
And needless to say, those banks targeting provider, as a result, removing removing will significantly expand the services
mass-market customers with simple the last powerful incentives to use cash they offer. Likely examples of processes
products will also be dependent on their – privacy, tax avoidance, lack of access provided by utilities include customer
ability to compete on cost. As the pain of to banking services. Cards will remain authentication, fraud checking, payments’
switching providers continues to decrease, popular, as they are quick, effective, allow processing, basic account infrastructure
customers will become even more mobile easy compartmentalisation of spend and and KYC processing.
– intensifying competition across all don’t run out of power.
segments. Every traditional bank needs
to become the lowest cost producer, and •
Biometrics (e.g. fingerprints, voice
(nearly) every product needs to have recognition) will become commonplace
acceptable returns. Moreover, the lowest in transaction authorisation, but will
cost in 2020 will be up to 50% lower on a remain tied to a replaceable physical
per transaction basis than today, as banks device (e.g. smartphone). Biometrics
redesign their processes and systems for are unique and unchanging, yet can be
the digital age, structurally changing their captured and replicated, so two-factor
cost base and instituting more aggressive authentication (e.g. my fingerprint and
ongoing cost management processes. my phone) will always be required.
12 PwC Retail Banking 2020•
Most cross-border knowledge
transfer of capital, best practices and
innovations will take place through
new market entrants, third-party
partnerships and intermediaries, rather
than through cross-border banking
institutions. We see a significant rise in
cross-border banking partnerships and
the increasing development of cross-
border service providers and advisers to
fill the intellectual property gap caused
by the shrinking of cross-border banking.
This movement is a direct response to
the localisation of the global banking
system, and the constraints on deploying
capital across different jurisdictions.
More specifically, we predict a growing
mismatch of excess deposits in the
developed world and banks unable to
satisfy consumer credit demands in the
developing world.
PwC Retail Banking 2020 13Demographics – Demographic changes will provide
opportunities for growth and will require
The global middle class is projected to grow
by 180% between 2010 and 2040, with Asia
• C
ities will continue to grow in
attractiveness – as urban migration
changing priorities innovation to develop new products outpacing Europe by 2015. Over the next 30 creates 1,000m new banked customers,
and services. years, some 1.8 billion people will move into as well as 800m new urban unbanked
and opportunities cities, mostly in Africa and Asia, creating one by 2040.
for growth Developed-market populations are ageing,
driving focus towards savings and investment
of the most important new battlegrounds for
•
Banking the unbanked (urban and
financial services businesses.
and away from credit and consumption. The rural) will become a primary policy
developing world is more mixed. China has By 2020, we expect: objective in both developed and
a similar demographic profile to much of emerging markets, as governments
the developed world, for example, which •
Wealth management will move seek to reap the economic benefits of
explains the reluctance of the Chinese state alongside deposit-taking as a baseline broader access to financial services for
to create more of a credit-based ‘consumer service for retail banking. Banks without their populace. This push will drive
culture’, despite internal and external a strong wealth offering will lose share, as new products and business models,
pressures. Brazil, however, has a much customers take increasing responsibility and will become the primary focus
younger population, and a rapidly growing for their lifelong financial well-being of governmental or state-sponsored
appetite for consumer credit. and planning in both the developed and institutions, particularly where the private
emerging worlds, and look for their bank sector is unable to fulfill the need.
Individual life expectancy is rising, to meet this need.
lengthening expected retirements. For
example, a man born in the UK in 2020 is • F
ee-based revenues will increase as
expected by the government to live for 92 a percentage of total in developed
years vs. 87 years for a man born in 1990; markets and China, as consumers use
and the changes are far more dramatic in longer working lives to save more and
emerging markets. take out less (pay down more) debt, and
as banks favour growing business such as
Public and private pensions will be wealth management and retail brokerage.
restructured, cutting benefits and indexing In developing markets with economic and
retirement ages to life expectancy. social stability, we will continue to see
rapid credit growth.
14 PwC Retail Banking 2020Social and Customer expectations are being shaped
by their interactions outside of the banking
By 2020 we expect: information and opinion (good or bad)
can be amplified, creating new risks and
behavioural change industry – they increasingly want the type •
Banks will organise themselves around opportunities. Mastery of social media
and quality of service they receive from customers instead of products or will be a core competency.
– rising customer industries that place significant focus on channels. They will offer a seamless
expectations and customer experience (e.g. the ease of use customer experience, integrating sales
and service across all channels. They will
• C
ustomer trust will be returning.
Some banks will benefit significantly
of Baidu, the seamless integration of Apple
the need to regain products across products and channels). develop the ability to view customers from taking a leadership role in the
as a ‘segment of one’, recognising their public debate. The leading firms will
public trust Customers are also increasingly connected uniqueness, and tailoring their offerings have reclaimed at least some of the high
to others across social, geographic and so that customers view banks as ‘meeting ground they lost in the financial crisis and
demographic boundaries. This ‘social world’ their needs’ not ‘pushing products’. begin to reshape public opinion. They will
augments close friends and family as the inform and educate – from mass offerings
primary source of information, opinion and •
Banks (in most countries) will evolve on basic financial skills (imagine a bank-
recommendation. The smallest piece of noise their customer experience to be more led MOOC on finance topics with high
can be amplified massively and instantly. female-friendly. In one US survey, 73% school accreditation) to financial history,
Everything from reputation to purchasing of women said they were dissatisfied with culture and economics, reminding us of
decisions to sales channels is impacted. the financial services industry. Complaints the fundamental benefits of banking to
range from a lack of respect, to being society. All major banks will incorporate
Further, unprecedented numbers of women given contradictory advice and worse consumer education as part of their sales
are heading households, controlling wealth terms than men. Winners tomorrow will process. For customers to trust their banks
and spending, and becoming the primary address this through a combination of they need to feel that banks are acting in
earners. In the US, for example, women branding, product and service solutions. their best interests – common practices
control 50% of private wealth, head one- We expect many more bankers to be such as teaser deposit rates that reset after
third of households, are the primary women in 2020, and many more banks to one year go against this, while the ability
breadwinner in 40% of families and are publicly state this as an ambition. to design your own mortgage and control
increasingly more educated than men. the flow and timing of paperwork is in line
Globally, women control 65% of consumer •
Social media will be the media.
with this thinking. In any case, we see
discretionary spending, and this is set to rise Today, we view social media as co-
conduct risk moving from a largely Anglo-
in the coming years. existing alongside traditional media. By
Saxon concern to a global requirement
2020, social media will be the primary
from an increasingly educated and
Customer trust is at an all-time low, and medium to connect, engage, inform and
empowered customer.
they want their banks to be more socially understand your customers (from the
responsible. They are also concerned about mass ‘social mind’ to the minutiae of
privacy and security, as more of their each and every individual), as well as
personal information and financial life the place where customers research and
migrates online. compare banks’ offerings. And, as today,
PwC Retail Banking 2020 15•
Cyber security is paramount to intervening – witness Waking Shark II,
Social and rebuilding this trust – winners will
have invested significantly in this area.
the Bank of England-led cyber-attack
wargame, simulating an attack on the UK
behavioural change Recent high-profile security breaches financial system. But simply following
and media commentary surrounding regulatory rules won’t allow the business
– rising customer cyber attacks have generated fear and to keep pace with the constantly growing
expectations and uncertainty, further eroding stakeholder and changing cyber threats. A proactive
trust. There are now higher expectations response is vital. Key priorities include
the need to regain about security of information and privacy identifying and focusing resources
public trust among clients, employees, suppliers and
regulators. Risks range from internal
on the ‘crown jewels’ most in need of
protection. By 2020, leading banks will
misuse of social media to organised have developed cyber-security strategies
cyber-crime (e.g. mass information theft, that are aligned with their business
or denial-of-service attacks). In our recent objectives, risk-management protocols
17th Annual Global CEO Survey, we found and regulatory requirements. Many banks
that 71% of banking and capital markets lack the resources to tackle these issues on
CEOs consider cyber insecurity as a threat their own, and will have partnered with
to their business prospects, more than third parties.
any other sector. Regulation on cyber
security is increasing, and regulators are
71% of Banking and Capital Markets
CEOs see cyber insecurity as a threat
to their business, more than any other
sector. A proactive response is vital.
PwC 17th Annual Global CEO Survey, Feb 2014
16 PwC Retail Banking 2020Potential disrupters It is always easier to take the trends we see
today and model their impact on the future.
Healthcare and demographics
Do technological advances in health
bank model and accelerate the movement
towards national vs. cross-border banks?
to this future However, a number of ‘big things’ could create quantum leaps in longevity that Does it spur a new era of innovation in some
happen between now and 2020, which could completely change the world demographic countries and regions where alternative risk
reverse or accelerate existing trends or even map? With the possibility of working and management and regulatory approaches
create new ones. living productively for another 20 years (or allow for banks to safely increase lending
longer), do countries with declining fertility and economic growth, or does this simply
Shifting global resources rates have a distinct advantage? What if begin the process of creating the next
For example, what happens if the US those advances dramatically cut the cost of financial crisis.
becomes energy self-sufficient? Or, more care and, by extension, the current health
radically, if technological developments bills and projected health benefit obligations Financial crisis
in shale gas, solar and other clean energy that are constraining economic growth What if the next financial crisis occurs
means that nearly every country could be today? What would this mean for savings between now and 2020? One can see a
self-sufficient? What would that do for rates, demand for products and financial number of potential areas of risk: from the
economic development and how would it institutions themselves as they seek to potential break-up of the Eurozone, the
change trade flows and economic activity? manage their workforces? slowdown in emerging markets, and the
Does this stop or slow the relative rise of sovereign debt crisis impacting most of the
the East and decline of the West or does Regulation governments in the world. Even more than
this allow China to grow without importing We said before that regulation is the most the last one, another financial crisis could be
energy? What do oil-rich, but undiversified important factor shaping banks today. What truly game-changing, not only for financial
economies do when the world doesn’t buy if the regulatory burden on the financial institutions around the world, but for the
their oil and gas? How would financial sector becomes so great that it is impossible post-World War II geopolitical order that
markets react and evolve? Would this simply for the financial system to function efficiently has underpinned the world for the last
accelerate the likely next battle for and effectively? This, in turn, say, constrains 70-plus years.
resources: water? the supply of credit and risk management
tools to the real economy at levels that The bottom line is that the more agile and
War or terrorism support economic growth in some countries innovative institutions will be those best able
Could a war or a terrorist strike with and allow for the payment of sovereign to navigate any significant disruptors.
weapons of mass destruction cause the debt. Do nation-states begin to pull out of
isolation of a significant country or region international agreements such as Basel III
and create two or more blocs of financial and ‘go it alone’ for economic survival, so
systems in the world? Could a financial they can loosen the constraints and gain
institution operate in both? Would they be short-term economic advantage? Does this
allowed to by their home governments? begin to unwind the improvements in global
regulatory cooperation and consensus-
building, post the financial crisis and
further fracture the cross-border universal
PwC Retail Banking 2020 17Evolution and So let us take stock. ROEs, while improving,
remain at or below the cost of capital in
Much has been written about the current
banking competitive landscape and the
In short, banks need a clear strategic vision,
and they need to do things differently.
disruption – an much of the world. Growth remains elusive. models that successful banks are following
Regulatory reform, from liberalising rates or should adopt in the future. For example, In the next section we discuss how.
imperative for in China, to capping card fees in the US, is should one focus on wealthier sophisticated
change impacting revenue streams. Efforts to cut customers and offer a complete and high-
costs have not been transformative and margin complex product set? Or perhaps
compliance costs have risen. Bankers admit concentrate on delivering simple banking
that today’s execution will not be sufficient products at the lowest cost, leveraging direct
(even as it is necessary), and that much more distribution channels? Or seek the benefits of
needs to be done. being the largest scale player?
The industry is at an inflexion point. In 2020, we expect to see new models and
Changing customer expectations require fiercely disruptive competitors. For example,
significant investment. Technology may what if a leading social network chose to set
render much traditional infrastructure up a banking and payments business? Or if
obsolete while enabling superior service, a leading search engine was to emerge as
growth and new competition. Bankers a global crowd-sourcing platform, raising
understand that the operational complexity funds and then voting on which competing
of the past needs to be addressed to provide enterprises should benefit?
the efficient, effective platform for the
future. We don’t believe the future is clear enough
to present a complete and detailed analysis
Banks need to get ahead of these challenges of business models, market shares and
and retool to win in the next era of margins of all players. In a way, that isn’t
competition. This is imperative, and also the point – particularly given the high levels
a tremendous opportunity. Banks need to of uncertainty. Rather, we encourage banks
make hard choices about which customers to be thinking today about this disruptive
to service, how to win and where not to play. future, and developing their own plans for
They need to rebuild their organisations success, plans that include developing agility
around the customer, simplify and and optionality – the characteristics that
structurally reduce cost. They need to learn create value in times of uncertainty. These
to be agile, innovative and adaptable in order plans should address today’s imperatives,
to execute effectively. contain a clear vision of the bank in the
future and be adaptable enough to change as
the world continues to evolve.
18 PwC Retail Banking 2020Six priorities
for 2020
Each bank needs to develop a clear strategy to deal with this
transforming landscape. They need to decide whether to lead, to
follow fast, or to manage defensively, putting off change. They need
to create agility and optionality, to adapt to rapid change and future
uncertainty. Yet, whatever the chosen strategy, success will come from
successfully executing the right balance across the following
six priorities.
PwC Retail Banking 2020 19From our work with leading players Yet, whatever the chosen strategy, it will
Figure 6: Six Priorities: Significant gap between preparedness and importance
worldwide, from our research into the involve executing a balance across these
macro-trends impacting banking and from six priorities.
our survey of global banking executives, we Customer-Centric Business Model
have identified the following six priorities for Banking executives agree that these
retail banks to win in 2020: priorities are very important, with each Optimised Distribution
of them scoring between 4.3 and 4.5 (out
of 5) in our survey. However, we found a Simplification
1 Developing
a customer-centric business
model. striking gap between those ranking these Information Advantage
priorities as ‘Very important’ (46%–64%)
and those stating that they saw themselves Enabling Innovation
2 Optimising
distribution.
as ‘Very prepared’ (11%–17%) and/or that Proactively Managing Risks
they were making a ‘Significant investment’ and Regulation
3 Simplifying
business and operating (18%–25%) in these areas. Technological, 0% 10% 20% 30% 40% 50% 60% 70%
models. organisational, talent and cost constraints
were viewed as the greatest obstacles n Very prepared n Significant investment n Very important
4 Obtaining
an information advantage. to success.
Source: PwC Banking 2020 Survey
5 Enabling innovation, and the Below, we discuss each priority in turn.
In this short paper we can barely scratch
capabilities required to foster it.
the surface of these complex issues. We
welcome the opportunity to have a deeper
6 Proactively
managing risk, regulations
conversation with you on these topics, as
and capital.
well as on crafting your overall strategic
Every bank needs to develop a view of the response.
future landscape, and the uncertainties
surrounding it. Every bank needs a clear
view of its own unique strengths and
challenges. And every bank needs to
develop its posture against this evolving
and uncertain future. Every bank needs
a clear strategy.
20 PwC Retail Banking 2020Our Fiercest Competitor
Workshop is a powerful and
practical tool to rapidly craft
an integrated strategic response
to these evolving forces
Part 1: Fiercest Strategy
Discuss industry perspectives, gain insights on
Designing your It’s hard to take big-picture trends and
priorities, and translate them into tangible
•
Design your fiercest competitor(s).
We ensure participants take an end-
market challenges and potential disruptions
Result: Quickly get past biases that may
Fiercest Competitor. actions. It’s even harder to be unreasonably to-end perspective, and define their distort your market view and cause you to miss
aspirational, yet realistic in what can be fiercest competitor – a competitor with potential competitors
Mastering change achieved. Designing your fiercest competitor disruptive strengths that ruthlessly
by making it real. is a concrete way to tackle these abstract exploits your weaknesses. We design this
ideas – and identify how and where you need competitor in a variety of different future
to change, to thrive in 2020. scenarios. We define a fiercest strategy
(value proposition, sources of sustained Part 2: Fiercest Business Model
PwC has worked with dozens of clients to advantage, where to compete) and a Design the Fiercest Competitor and strategies
re-imagine their companies in a practical, fiercest operating model (organisation, for a new business model
results-oriented way. In a way that leverages processes, technologies, culture), so that Result: Rapidly assess impacts to your
the ambitions and insights of your top team, you fully understand how these new business model, and determine the best strategic
and helps build real alignment as to the players will win. path forward
path forward. In a way that doesn’t take six
months and millions of dollars. •
Make it real. Finally, we translate the
insights gained from designing the
Imagine a series of facilitated workshops fiercest competitor into tangible actions
where your business and functional leaders for your own business. First, teams gain Part 3: Closing The Gap
are asked to think differently, to move a heightened sense of priority – and Make the organisation become the Fiercest
beyond the incremental and imagine what decide to accelerate existing initiatives Competitor
could be. And then translate these insights and abandon others, so as to focus Learn to quickly work through business model
into realistic actions. Actions that have scarce resources in the most critically challenges
been debated and agreed across business competitive areas. Second, teams Result: Avoid polarising viewpoints while quickly
and functional silos. This is ‘Designing your imagine new third-party partnerships. identifying and resolving the root causes of
fiercest competitor’. And finally, teams begin to develop ideas problem areas
for disruptive business designs – ways
• C
atalyse provocative thinking. We
to change their own strategy (where to
analyse industry trends and drivers,
compete) and operating model (how to Part 4: Prioritised Path Forward
and assess their importance – to ensure
compete) – to attack the market in similar Turn the discussion takeaways into action items
a shared understanding of the industry
ways to the fiercest competitor. Gain expertise in roadmaps, mobilisation, and
landscape. We develop aggressive and
disruptive scenarios – and then use them execution
to provoke your leadership team into re- Result: Work through challenges and prioritise
the solutions as part of a long-term go-to-market
imagining the business. strategyDeveloping a
customer-centric
business model Much has been written about the need to Banks struggle to join the dots internally
1
use. They want to feel like their bank is
develop a more customer-centric business and prepare bank-wide views of a customer anticipating their needs, not bombarding
Banks today have a simplistic model. And many banks have been relationship, let alone integrate external them with product offerings. They want
understanding of their customers investing in improving the overall customer sources of data. And, as such, risk and credit transparency and no surprises in terms of
and a vastly complex product experience. But few (if any) have attempted decisions are typically taken at the product fees. Today’s definition of first-class service,
the sort of wholesale transformation of their level, not at the customer level. which most banks are a long way from
set. The winners of 2020 will operating model which we believe necessary delivering, is rapidly becoming a baseline
turn this on its head. They will to win in 2020. Many banks carry vast product sets, with expectation. And banks know that better
subtle differences, frequently not appreciated customer experience leads to greater loyalty,
develop a much more complete
Our survey indicates a growing awareness, by customers. This comes with a consequent advocacy and revenues.
understanding of their customers but a significant gap in preparedness. cost in operations, technology, service and,
and dramatically simplify their Sixty-one percent of bank executives say that at times, risk and regulatory challenges. The winners of 2020 will develop a much
product set, and so deliver a a customer-centric business model is ‘very Systems are not modular in design, so that deeper, holistic understanding of their
important’, and 75% of banks are making each variant adds to this complexity and customers. They will need to acquire,
significantly enhanced customer investments in this area (this pattern is cost. Legacy products, no longer offered integrate and analyse multiple sources of
experience with lower levels of consistent globally). Yet only 17% feel for sale, are rarely discontinued. And every internal and external data. They will be able
operational risk. Begin with ‘very prepared’. bank customer has experienced the thrill of to understand their customers’ needs, and be
understanding customer needs, being passed from call-centre operator to present with a relevant solution at the time
Banks today typically do not know their call-centre operator in the vain hope that of need. They will simplify their product sets.
not with products and pricing. customer very well. Now, at the product one of the them can solve the problem, And they will redesign their core processes
level, many banks have invested significantly that is if they can figure out how to talk to from a customer point of view.
in customer analytics – plenty of credit a real person at all. No wonder customers
card providers, for example, understand are frustrated and regulators are concerned Further, they will (re)answer the most
a customer’s value potential, can track about fair customer treatment. fundamental questions of who are their
spending patterns and make targeted target customers, what is their value
offers. Yet, many still send customers Yet, even as banks invest today to address proposition to those customers and what
multiple product offers in the hope that these issues, the bar just keeps on rising. competitive advantages will distinguish them
something will stick. And few can analyse Customers are redefining their expectations, in the marketplace. A bank does not need to
a customer’s deposit account, see that his taking their cues from other industries that be all things to all people to succeed.
salary deposit has increased, and send a offer multichannel access, product simplicity,
note congratulating the customer on his seamless integration and ‘segment-of-
or her promotion together with an offer of one’ targeting. They want convenience,
a premium card and a higher credit limit. personalisation, accessibility and ease of
22 PwC Retail Banking 2020Figure 7: Areas of significant effort over next 5 years
Enhancing customer data collection 54%
Evaluating bank performance
metrics and best practices from 53%
customer viewpoint
Allowing for increased customer
choice in configuring product features, 50%
including pricing
Using social media to monitor
48%
customer preferences
Conducting customer segmentation
using a dedicated group that supports 44%
strategy development across
Offering a mix of self-directed and
personal interaction channels 41%
to customers
Creating a flexible and agile product 38%
portfolio adapted to customer segment
Creating and filling an executive-level 15%
Customer Strategy Officer position
0% 10% 20% 30% 40% 50% 60%
Source: PwC Banking 2020 Survey
PwC Retail Banking 2020 23Executing on today’s In our paper ‘Experience Radar 2013
– Lessons from the U.S. Retail Banking
• H
elp your story get told. Customers
can become your best marketers. Look
imperatives. Industry’, we describe the actions banks to your staff to make this happen. Fifty
should take to ensure a memorable customer percent of recommendations are due to
Better customer experience. We see these lessons as broadly good experiences, not to rates or products.
applicable across the globe. Identify key influencers among customers
service is rapidly to serve as brand advocates – promoters
becoming a baseline •
Win the fee war. Fees and rates dominate
the banking experience – they are the
account for 80–90% of positive word of
mouth. Manage social media exposure –
expectation, yet most number one driver of customer purchases, one in four customers share experiences
and two in five bad experiences touch
banks are far from on rates and fees. Frequent changes
this way.
delivering it. Here’s have frustrated customers. Mitigate this •
Go digital. Customers want to interact
frustration with better communication whenever, wherever. Give them the
how to do better. and more customer-friendly fee strategies. convenience they seek through digital
tools. Sixty-one percent of customers
• F
ix the bad, fast. Customers want to feel want to research on their own, and 42%
like their bank is working with them, not buy on their own without help from
against them. Don’t let customers walk representatives or experts.
Experience away with a sour taste in their mouth.
Radar 2013 Two in five customers leave banks after •
Balance automation with the human
Lessons from the U.S. Retail
Banking industry a bad experience, and 45% of those will touch. Sixty percent of great experiences
Locating the sources
of value behind truly
exceptional customer
actively discourage others from using that are due to great staff. Twenty-five percent
experience
November 2012
bank. Turn issues into opportunities to of customers rely on staff to do research,
build loyalty. Empathy and an apology go 46% to select products and 63% to resolve
a long way towards satisfactory problem their problems. Create a multichannel
resolution. Identify these negative strategy that balances cost and service.
volume 1 experiences and work to remove Encourage self-service for routine matters,
the causes. and refocus branch and contact centre
staff on higher value-added activities like
relationship building and sales.
24 PwC Retail Banking 2020You can also read
