PWC Retail banking

In its report on Retail Banking 2020 — Evolution or Revolution, PWC optimistically ignores many of the details of its survey and concludes that banking has a great days ahead.

“Despite the emergence of new competitors and models, we believe the traditional bank has a bright future – the fundamental concept of a trusted institution acting as a store of value, a source of finance and as a facilitator of transactions is not about to change.”

The landscape will change, the report adds “in response to the evolving forces of customer expectations, regulatory requirements, technology, demographics, new competitors and shifting economics.”

The consultancy interviewed more than 500 client executives from leading financial institutions across 17 markets and found more than half believe that large banks will be the winners in 2020.

PWC identified six priorities for success: Developing a customer-centric business model, optimizing distribution, simplifying business and operating models, obtaining an information advantage, enabling innovation and proactively managing risk, regulations and capital.

It seems undaunted by the associated finding that fewer than 20 percent of finance executives are “prepared against these priorities, and only a similar percentage report that they are making significant investments in these areas.”

Banks need to decide whether they want to shape the industry, become fast followers or manage defensively, the report added. It places banking in a larger political context, noting that “Nation-states are seeking to better control their financial systems and the institutions within their borders, as they learn that a global banking system becomes local in a crisis.”

It makes the familiar case about branches — they need to become more productive or less costly or simply fewer — the consultants expect 20 percent fewer branches in the U.S. by 2020.

It suggests that top regional banks in the U.S. could become viable national players, a position somewhat at odds with Capgemini which thinks that the largest banks are preparing for a digital future which many regionals and super-regionals don’t think the changes and competition from fintech firms will impact them — see my recent story at Forbes.

It suggests banks may use a utility model such as relying on vendors like Fiserv for transaction processing, payments, and KYC processing, although the report mentions cloud just once, in passing. Similarly, it says wealth management will “move alongside deposit-taking as a baseline service for retail banking,” without discussing robo advisors or the huge mutual fund companies that have already takenn a large share of the wealth management business.

“Banks will organize themselves around customers instead of products or channels,” the report says, and then goes on to report that two in five customers had bad experiences with their bank, usually around rates and fees.

Despite the expectation that today’s leading banks will continue to be healthy in 2020, PWC notes that only 17 percent of the executives it surveyed feel well prepared for the  “difficult and expensive work of integrating, optimizing and simplifying their platforms.”

As for innovation, “Ninety-seven percent of CEOs consider innovation as a key priority for top- and bottom-line growth, but only 10% of CEOs view their organisations as innovation leaders.”

PWC does suggest major improvements can be achieved without replacing core systems, or undertaking radical digitalization. Working with a provider of financing solutions over 18 months, without touching the underlying technology platform, it helped the client “reclaim 50 percent of sales team time to focus on revenue generation. They reduced cost-to-serve by 25 percent. Processing performance improved 45 percent. Turnaround times and error rates have reduced significantly. Processes were standardized, and handoffs reduced (from an average 20 to 3).”

Judging from the lower percentage of bankers who feel prepared for the challenges they face, PWC has lots of opportunity ahead to do more of that.

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