2020 retail banking trends

Alex Lenihan, Consultant in our Financial Services Practice, discusses the five key trends expected to play out in the UK retail banking space in 2020

UK retail banks are adapting to a shifting market climate. Customer expectations are changing in response to rapidly developing technological capabilities being offered by new entrants to the market. Mobile banking, automatic customer response, immediate payments, and live account information have now become standard across the industry. This is only the beginning. The remit of digitisation and the role of data is self-evident. Automation of process and the role of machine learning is ever-expanding. History has taught us that such transformational change doesn’t come without mishaps along the way. Moving quickly and with agility is a difficult concept to embrace in large institutions but banks must evolve in order to remain competitive. Operational resilience will remain at the forefront of the PRA’s agenda in 2020 so banks must continue to balance the importance of robust risk management against the need to innovate.

This year it is anticipated that retail banks will continue to focus on sharpening and streamlining their organisational design. There will be investment in culture, technology, and talent to drive the shift from unwieldy to agile.

These are the key retail banking trends we expect to play out this year:

1. Customer centricity

Historically, banks have been product led but shifting customer demands require them to now reconsider their focus. Critically, banks are becoming forward thinking rather than reactive and are anticipating customer requirements as a whole. Alongside this, greater importance is being placed on considering the customer’s interaction with the business via multiple channels, whether that is online, mobile or in-store. Banks are designing products that respond to the customer’s financial condition and are giving them the tools to manage their personal finances.

With particular reference to organisational design, the chief operational officer’s role has become central to enabling this change in business strategy. Retail banks are increasingly seeking out COOs that can go beyond the nuts and bolts of managing centralised infrastructure in favour of leaders that can design a targeted operating model with customer centricity at its core.

2. Simplification

In 2020, we will see increasing work to refine the banking organisational structure through continued centralisation of core operations. Where product releases have in the past remained reliant on traditional “waterfall” practices, agile methodologies will take advantage of rapid deployment into live, real time, environments.

A redesign of the bank’s operating model requires more than a structural change, it must also be complimented with a change in mindset. Adopting a culture of agile working will enable a “minimalised banking” environment that prioritises simplified processes, smaller teams, and shorter projects. We expect banks to invest heavily in facilitating agility, looking for a change in leadership style which focuses on the people aspect of shifting culture and business transformation.

As automated technologies have developed to streamline what would have previously been manual tasks, banks are relieving teams of old technology and time-consuming processes by becoming digitally enabled and API driven. We will see this not only benefit the bank with further cost savings, but it will drive revenue from the increase in customer engagement which accompanies effective data leverage. This will be especially pertinent with processes such as credit scoring and underwriting which can be sped up from a few days to just a few minutes.

3. Data

Financial institutions now understand that data is the key differentiator in growing their businesses. Building data acquisition and analytics capabilities that facilitates a deeper understanding of customer behaviours will drive actionable insights and create the opportunity to offer the right products at the right time. Customer needs can be identified and better yet, anticipated. This not only provides the opportunity to make the customer feel valued, but it can take away the stress that some customers experience when dealing with their personal finances. New developments will see lenders, for example, pre-approving customer’s applications for finance and sending a notification to the customer on their phone when their location services places them at a car dealership.

We can expect data to be at the heart of operations, feeding into every banking function from product development to customer service and sales activity. Retail banks are likely to accelerate the growth of their data science teams with the acquisition of expert talent who can problem solve and analyse large data sets. Chief Data Officers are now commonplace within the c-suite and we expect to see more appointments in 2020. This only goes to emphasise the strategic importance of data in the business setting and that it is separate from the systems running it.

4. Risk and regulation

Concern over security and privacy is growing. Trust in the banking sector has remained low since the 2008 financial crisis, which is something that financial services has struggled to regain. This has been especially difficult with emerging fintechs who proposition themselves as smaller, more agile, technology driven services. They will continue to bring disruption to the market with emerging business models that centre on transparency and increased customer engagement. Such innovation can present increased levels of risk and can test an organisation’s operational resilience. In light of this, the regulators will expect to see detailed planning and mapping in place. The reputational damage that system outages can bring is real, not to mention the broader systemic risk.

Low customer trust in the sector also stems from the numerous large-scale successful cyberattacks on major banks, and other personal data holding companies. This has resulted in regulators increasingly concentrating on cyber security and tightening the minimum requirements for data protection and safe IT infrastructure. In 2020, banks – over other sectors – will increasingly focus on mitigating their vulnerability to cyber risks, making it a sure priority on the chief risk officer’s to-do list.

5. Innovation

As ever, innovation remains at the forefront of the industry. However, it is not a concept that can continue to be delivered in isolation via internal incubators or external accelerators. 2020 will see a broader adoption of innovative thinking throughout organisations as they become more agile in their working practice and move towards embedding lateral thinking into everyday use.

Over the next year, we are likely to see a greater emergence of alliance marketing and partnerships as more established platform providers and “eco-systems” allow for a broader distribution of products and services. Partnerships will also be formed through education, with banks taking advantage of university research functions in order to access skills in areas as varied as cybersecurity, data analytics, fintech and climate change finance.

Large incumbent banks will continue to outsource core services to third parties and become less reliant on timeworn legacy architecture. Such “service based” operations will require leaders strong on stakeholder management with the ability to assimilate differing scales and cultures.

The state of retail banking as we know it is changing. Excess liquidity in the mortgage market is forcing the smaller players to reconsider their risk appetite. Margins are becoming tighter as growth remains stunted and costs increase. New disruptive market entrants are challenging the established order in ways that were unimaginable 10 years ago. Established retail banks will continue to shift from their long-standing business models, pursuing innovation, technology and data capabilities as they strive to achieve a customer centric strategy. The market for talent is shifting substantially, and it requires creative, highly experienced leaders with the ability shape the future of financial services.