Retail Banking 2020 Evolution or Revolution?

Page created by Terrence Tucker
 
CONTINUE READING
Retail Banking 2020 Evolution or Revolution?
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
Retail Banking 2020 Evolution or Revolution?
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
Retail Banking 2020 Evolution or Revolution?
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 2020 Evolution or Revolution?
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
Retail Banking 2020 Evolution or Revolution?
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
Retail Banking 2020 Evolution or Revolution?
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
Retail Banking 2020 Evolution or Revolution?
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
Retail Banking 2020 Evolution or Revolution?
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
Retail Banking 2020 Evolution or Revolution?
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
Retail Banking 2020 Evolution or Revolution?
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 13
Demographics –               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 2020
Social 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 2020
Potential 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 17
Evolution 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 2020
Six 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 19
From 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 2020
Our 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.                                                                       strategy
Developing 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 2020
Figure 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 23
Executing 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 2020
You can also read