Retail banking needs a paradigm shift



The frenetic pace of innovation disrupting the financial sector has introduced a level of uncertainty that the sector has never faced before. New entrants and a rapidly changing business model have provided customers with a plethora of options.

For many, traditional banking faces a bleak and uncertain future. However, banks can thrive in the status quo if they choose to respond to these developments by adapting to them and taking advantage of the new opportunities they present.

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The current climate, with the Covid-19 crisis, is a good time to be introspective and redefine priorities. The coronavirus has just accelerated the trends that were already in motion before the pandemic.

The crisis validated the need for robust digital capabilities and consumer demand to manage banking services through digital channels. This accelerated demand has identified gaps and weaknesses that banks must address to meet these demands.

Technology is changing everything, becoming a powerful catalyst for increased service and lower costs, with innovation imperative. Demographics are also changing the way banks operate, especially with the growth of the middle class and the electronic generation.

Social behavior and customer expectations are changing, with an emphasis on customer experience and trust, and cybersecurity is key to building that trust.

Retail banks are of crucial importance as they help in the supply of money. Around the world, there is renewed interest in retail banking, particularly in the activities related to products and services aimed at individuals and small businesses.

These now represent a larger share of commercial bank balance sheets. As part of the ‘return to retail’, banks are focusing on expanding services to retail customers.

In Bangladesh, although not all banks may have a dedicated retail or personal banking division or, as such, a retail or consumer banking manager, they open retail bank accounts or individuals or provide banking services to individuals. This includes current, savings or term deposits, NFCD or RFCD accounts, credit cards, auto or mortgage loans, inbound or outbound remittances, and even investment services for individuals.

Most banks have historically been able to focus on businesses or commercial customers.

However, they are increasingly entering the retail banking space to balance their institutional and retail deposits, loans, and more importantly, reduce the cost of deposits and increase return on assets with a better risk management.

Any North American or European bank will agree that more money is made from retail banking than from commercial or corporate banking.

Otherwise, risk-adjusted returns are much higher in retail banking. With a growing emphasis on “wealth management” or “preferred banking,” lenders will make more money from wealthy citizen retail offerings than synthetic-based investment banking.

Retail banking solutions must respond and react quickly to changing consumer demand and emerging trends. So what is the “evolution or revolution” needed in retail banking?

PwC recently published a report examining the impact of global megatrends on the future of retail banking, using PwC’s proprietary Project Blue framework. They looked at six priorities for retail banks today to ensure their future success:

1) Develop a customer-centric business model in which you invest in improving the overall customer experience and transforming the operating model.

2) Optimize distribution by offering service anytime, anywhere, making full use of all banking channels in an integrated manner.

3) Simplify business and operational models requiring a change in the way retail banks view their operations – product simplification; integrated distribution; shared services infrastructure; risk management at client level; streamlined compliance processes.

4) Obtain an informational advantage. Major banks collect structured and unstructured information from sources like credit scores and cross-channel bank customer interaction data etc. The main players are developing advanced analysis capabilities to integrate this vast data library, analyze it and create actionable insights.

5) Enable innovation and the capacities required to foster it. Innovation will be the most critical factor for sustainable growth in turnover and results of the banking sector over the years.

6) Proactively manage risks, regulations and capital, with rules more complex and regulators less flexible, big banks need to take a pragmatic, proactive and increasingly integrated approach to “business as usual”.

Every bank needs to develop a vision of the future landscape and the uncertainties that surround it. They also need a clear picture of their unique strengths and challenges. And each bank must develop its posture in the face of this changing and uncertain future. Every bank needs a clear strategy.

There are currently 61 regular banks operating in Bangladesh. Thus, none of these banks should forget that their customers now have at least 60 other options, and the one that can best serve its customers will get a larger share of the business.

Banks need to continually invest in their people and products and, more importantly, in the fulfillment and delivery platform. Many banks are turning to branchless banking, favoring digital products and platforms in order to be able to serve their customers without going to branches.

Now more than ever, customers are turning to alternative service delivery channels. The 32% growth in the number of monthly Internet banking customers and the 40% growth in the monthly number of Internet banking transactions between January 2020 and January 2021 prove this.

Major banks are now promoting alternative channels to their existing customers through ATMs and advanced ATMs, especially for small deposits and withdrawals to ensure contactless services instead of over the counter services.

Many local banks are also trying to increase their efficiency by using automated token systems in their branches. Instant unsecured credits at the point of sale and through mobile wallet platforms are also being tested as an alternative to lengthy and manual credit processing.

Additionally, the rise of fintech in the global financial services industry highlights the need for retail banking to redefine and repackage its product and service offerings by leveraging modern technologies such as artificial intelligence. , blockchain and big data analysis or the risk of falling behind.

The author is a PwC Financial Services Partner. This article is an excerpt from a lecture at a workshop on retail banking attended by executives of private sector banks and financial institutions.


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