A recent report by the Economist surveyed 203 global banking executives to understand the challenges and changes they face. Over one-half (135) of the respondents work for banks with assets of less than $50b. The report concluded that, “The digital revolution has moved from existential threat to potential survival strategy for the world’s retail banks.”
The scale of disruption is unprecedented, across every market, every distribution channel and every single product line. Fintech poses a potentially fatal risk and will be a severe test of banks’ IT systems and their ability to respond to rapid changes in customer expectations, short product development times and growing cyber risks.
Key findings include:
- The banking world of the future. By 2020 bankers expect the banking environment to be shaped strongly by technology and non-traditional competitors. They believe that retail peer-to-peer (P2P) lending will be available via banking platforms (65%); retail banking will be fully automated (64%); and more money will flow via fintech firms than traditional retail banks (57%).
- Profits face multiple attacks. Business models must adapt to survive. Individually, the “scare scores” attached to changing customer behaviour (22%), new entrants (26%) and new technology (24%) are significantly lower than in previous years; collectively, however, they still represent a significant threat.
- A multi-headed monster. That competitive threat will come from many quarters. Apple Pay and its ilk (20%) and other non-financials (20%) may yet emerge to really upset the traditional banking sector. As keen as regulators are to encourage competition, new banks are seen as less of a threat (16%). Robo-advisers could lure away more profitable wealthy (and the not-so-wealthy) clients (17%), and P2P lenders attract dissatisfied borrowers and savers (21%).
- Regulators still watching. The too-big-to-fail rules are almost complete, but there is still plenty to keep compliance departments busy. Regulators now have time to cast an eye over consumer protection issues, with product design and transparency (24%) and fines and recompense orders (19%) still in play.
- Banks are adapting. Bankers see three main areas that they must change in order to survive: adapting the role of the branch network (36%); getting the right talent (35%); and modernising their technology (31%). Banks still have the relationships and the data, but can they maintain and build on that advantage?
Simply, if you are in retail banking, you are running a technology business. And you must execute as such.