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Banking Must Respond to Technology, Competitive and Regulatory Threats

According to a study of global banking CEOs by PwC, the three overarching banking priorities for future success are finding growth in a challenging environment, driving productivity, and getting ahead of risk and regulatory management. Unfortunately, there are challenges that stand in the way.

Subscribe TodayIn a survey of 175 banking and capital markets CEOs in 54 countries, PwC found that the vast majority of CEOs are optimistic about their growth potential, yet recognize that there are many forces in the industry that present a significant threat.

According to the study, 92% of CEOs were confident about their growth prospects over the next three years, yet only 43% believe that global economic growth will improve over the next 12 months, (down from 56% last year).

Counteracting this enthusiasm, 58% of the CEOs surveyed believed there are more threats to their company’s growth prospects than three years ago.

Sources_of_disruption_perceived_by_banking_CEOs_REV_9-16Technology Impacting Consumer Expectations

Beyond the concern around cyber threats and the ability to have the necessary skills to compete in a quickly changing marketplace, the speed of technological change is considered a major threat by banking CEOs. In fact, the PwC survey found that 68% of CEOs thought the speed of technological change is a threat to growth (up from 57% in 2014).

Correlated to the speed of technological change, CEOs are concerned about the shift in consumer expectations. The survey found that 63% of CEOs believe a shift in consumer spending and behavior will be a threat to growth in the future.

The foundation of this impact is caused by consumer experiences in other industries. As found in other similar studies, consumers are expecting enhanced digital experiences that are real-time, contextual, personalized and without the friction common with silo-based financial services.

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New Competition

As opposed to competing head-on with banks and credit unions, new market entrants are developing new ways to serve consumer and business customers at distinct points along the value chain. In most cases, the differentiation of start-ups includes reduced friction, an improved consumer experience and lower costs to serve.

These new entrants are able to be more nimble than traditional financial organizations since they are unencumbered by legacy infrastructure or business models. While not deemed as impactful as cyber threats, available skillsets and technology and consumer expectations, 53% of global banking CEOs see new market entrants as a threat to growth in the future, up substantially from 32% last year.

Beth E. Mooney, Chairman and Chief Executive Officer of KeyBank told PwC, “The days of being able to just think of other banks as your competitor are over. We’ve seen new entrants that are being driven by technology. We have to learn how to be competitive and differentiated against our other bank or financial service competitors.”

Regulation Continues to Impede Growth

Compliance and regulatory demands continue to be a big issue with banking organizations. Increasing expenses and strains on operations hit organizations of all sizes. The response to regulations has diverted investment and management focus needed to address the transformation trends in the industry says the PwC report.

The proportion of BCM CEOs who see overregulation as a threat to growth has grown to 89% from 80% last year, with 62% of CEOs being extremely concerned about this burden. In addition, 53% of CEOs believe regulatory change will have a very disruptive impact over the next five years.

In response to these challenges, banks are evolving business models based upon regulatory demands and the new economics, according to PwC. And, while regulation can be seen as burdensome, it can also create welcome barriers to entry for new fintech organizations and provide opportunities for growth. The key will be to leverage the regulatory playing field to an organization’s advantage through potential partnerships and collaborations.

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Opportunities for Success

Despite the challenges to growth found in the PwC survey, there were several opportunities for success identified by CEOs including:

  • Embracing digital transformation
  • Building innovative collaborations
  • Taking a proactive approach to regulatory compliance

Digital Transformation

Global banking CEOs’ have a clear recognition of the importance of digital in executing across the entire organization. The power of digital impacts the optimization of distribution, the improvement of operational efficiency, and the management of both internal and external risks while delivering a better customer experience.

According to the survey, 89% of CEOs see that data mining and analysis as a strategic imperative for their organizations. It is believed this use of data will not only improve the understanding of customer needs, but also drive operational efficiency and effectiveness throughout the organization.

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Unfortunately, in a survey done by PwC previously, while three quarters of institutions were investing in advanced analytic capabilities, only 17% believed they were prepared to take advantage of the opportunities.

As part of the digital transformation, 93% of CEOs see mobile technologies as important. According to PwC, “As consumers shift more and more of their activity to their mobile devices, it is critical that banks are able to move from traditional branch-based engagement models, and from distribution models where channels operate in silos, to seamless multichannel models.”

In an interview with PwC for the research, Ross McEwan, Group Chief Executive, RBS said, “I think there are three things that are really important (when implementing technology): one, technology must be flexible; two, operational processes must feed into technology in a very simple way; and three, people must be trained to actually understand the processes and how they feed into the technology and how they can access the systems and processes really well. So, it’s the connectivity of the three.”

Innovative Collaborations

While banks see innovation as the most important driver of growth, only 10% of retail banks believe they are innovation leaders. These few organizations, however, estimate that their businesses will grow by more than 60% over the next five years, compared to only around 35% among the average and 20% for the least innovative financial organizations.

In an interesting break from tradition, more than 40% of CEOs see joint ventures, strategic alliances and informal collaborations as an opportunity to strengthen innovation and gain access to new customers and new/emerging technologies, according to PwC. In fact, 37% plan to enter into at least one new joint venture or strategic alliance over the next 12 months.

According to PwC, “Partnering and strategic alliances are becoming an increasingly important way to extend reach and capabilities, especially as many banks are simplifying and refocusing themselves around a core set of products, customers and geographies.” Banks are considering a wide range of players as potential partners. Business networks, customers and suppliers are the leading contenders, while start-ups and competitors are further down the prospect list of partners.

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Proactive Approach to Compliance

It is more important than ever to develop a proactive approach to regulation, with a regulatory leader within the organization that is charged with liaising with regulators, assessing the strategic impact and coordinating responses to regulatory requirements.

In an effort to be more proactive, banks will begin to embed compliance throughout the organization, ensuring the most efficiency and effective use of resources states PwC. This will involve both cultural change and a streamlining and simplification of processes.

For many organizations, the centralization of the compliance process has worked well, especially in regards to know your customer and anti-money laundering efforts. Advanced use of data for identification and surveillance of abnormal behavior helps detect for instance.

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Next Steps

The best description for the challenges and opportunities in the banking industry today is that they are both a ‘moving target.’ The key will be to continually monitor and attempt to proactively address the challenges facing an organization, while building strategies to take advantage of the market opportunities.

Digital technologies provide a great deal of growth opportunities while providing the potential for greater efficiencies and reduced costs. That said, there may be much more fundamental priorities that many organizations need to address before embracing digital transformation.


Jim MarousJim Marous is co-publisher of The Financial Brand and publisher of the Digital Banking Report, a subscription-based publication that provides deep insights into the digitization of banking, with over 150 reports in the digital archive available to subscribers. You can follow Jim on Twitter and LinkedIn.

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All content © 2016 by The Financial Brand and may not be reproduced by any means without permission.

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