Accelerating tech-enabled transformation is imperative, focusing on data-enabled customers and building broad trust.
FREMONT, CA: Retail banking is going through a rapid transformation. Technology and innovation put traditional business models under immense pressure, increasing competition, regulatory complexity, embedded finance, consolidations, and changing customer expectations. This complex and evolving web influences consumer trust and how they conduct their financial lives. Banks are also responsible for answering a financial institution's fundamental question. Leaders of incumbent retail banks should understand these trends and prepare for the changes ahead.
Future scenarios for retail banking
Revolution in front-end development: New players outside traditional finance take advantage of client relationships and financial services integrated into their platforms. In the technology, media, and entertainment sectors, these companies are established, cash-rich brands capable of improving customer experiences and hyper-personalizing offerings to aggressively control customer relationships.
Banks are the backbone of the financial system but face high regulatory burdens and outdated technology. The companies provide licensed services and products but do not have customer-facing brands.
There is only one winner: The banking landscape is dominated by mega banks and fintech companies. The scale of these massive, tech-enabled institutions generates a competitive advantage. Data privacy and choice are generally not concerns for customers who gravitate to the largest, most personalized, and most convenient platforms. The largest banks can only create a differentiated customer experience.
Scattered landscape: Global institutions lose trust amid deteriorating societal trust. Regulators favor small and local banks, and sentiment favors nationalistic protection. Assets and clients move from global players to more local banks with smaller balance sheets, deposits, lending facilities, and micro-niche players.
Resurgent regulators: Regulatory agencies keep an eye out for a wave of non-traditional entrants. Competition comes solely from firms with full financial services licenses; government antitrust actions push technology players out. Banks can regain their role as the central providers of financial products and services thanks to this level of regulation.
Digital currencies from central banks: With the advent of central bank digital currencies (CBDCs), the use of cash is steadily declining. In B2B, B2C, and C2C segments, digital currencies are widely accepted.
The incumbent banks lose control over basic bank accounts, like customer data, that are the foundation of customer relationships. The traditional business model of banks becomes obsolete as a result.
