Retail Banking 2020 Evolution or Revolution

Retail Banking 2020
Evolution or Revolution?
Powerful forces are reshaping the banking industry. Customer expectations, technological
capabilities, regulatory requirements, demographics and economics are together creating an
imperative to change. Banks need to get ahead of these challenges and retool to win in the next era.
Banks must not only execute on today’s imperatives, but also radically innovate and transform
themselves for the future.
www.pwc.com/banking
Contents
03 Foreword
05 Executive summary
08 Impact of global macro-trends
10 Rise of state-directed capitalism
11 Technology will change everything
14 Demographics changing priorities and opportunities for growth
15 Social and behavioural change
17 Potential disruptors to this future
18 Evolution and disruption – an imperative for change
19 Six priorities for 2020

22 Developing a customer-centric business model
25 Optimising distribution
28 Simplifying the business and operating model
32 Obtaining an information advantage
35 Enabling innovation, and the capabilities required to foster it
39 Proactively managing risk, regulations and capital
41 Conclusion
42 Contacts
Foreword
Bob Sullivan
PwC (US)
Global Banking and Capital Markets Leader
We believe that retail banking will look very different in 2020 To produce this paper, we integrated insights
from PwC teams worldwide. We surveyed
than it does today.
560 client executives from leading financial
institutions across 17 markets regarding
the challenges and opportunities of this
Many have predicted the fall of the relentlessly against today’s imperatives, but evolving marketplace and their plans to John Garvey
traditional bank, as disruptive new entrants will also innovate and transform themselves respond. We developed a point of view PwC (US)
win share by offering a better customer to prepare for the future. This future will regarding how mega-trends will impact the US Banking and Capital Markets Leader
experience through new products and require institutions to be agile and open, future of banking, using PwC’s proprietary
channels. Yet, despite the emergence of new ready to explore different options in an Project Blue framework. And we developed
competitors and models, we believe the uncertain world. six priorities for retail banks today to help
traditional bank has a bright future – the ensure their future success.
fundamental concept of a trusted institution So is this change a revolution, or an
acting as a store of value, a source of evolution? In truth, it is both. All the We look forward to engaging in a provocative
finance and as a facilitator of transactions signposts for change are here. Many players dialogue with you and your colleagues, Justo Alcocer
is not about to change. However, much of are innovating and experimenting with new going forward. We would be pleased to PwC (Spain)
the landscape will change significantly in products, delivery channels and analytics. share additional points of view, information EMEA Banking and Capital Markets Leader
response to the evolving forces of customer The industry has historically changed slowly and insights, as appropriate. Feel free to
expectations, regulatory requirements, – evolutionary change. And the changes reach out to one of us or your existing PwC
technology, demographics, new competitors we envision are less about imagining contacts to start the dialogue.
and shifting economics. some unknown future, and more about
implementing and integrating all the things
Banks need to choose what posture to adopt we know today (see the sidebar on the next
against this change – whether to be a shaper page). Yet the pace of change is increasing Antony Eldridge
rapidly – banks that fail to shift gear risk PwC (Singapore)
of the future, a fast follower, or to manage Asia-Pacific Banking and Capital Markets Leader
defensively, putting off change. Staying being left behind. And if any institution could
the same is not an option. We believe that truly master all the priorities we set out in
the winners in 2020 will not only execute Section 3, it would be revolutionary indeed.
PwC Retail Banking 2020 3
Retail Banking Anna, 56, boards a high-speed train for her
commute to one of the world’s emerging
She then watches a message from the bank’s
leading education expert, suggesting it is
The next day, Anna accepts an invitation for
a video conversation with her bank business
2020 – Evolution megacities. She settles in and blinks twice, time to set up a university savings account adviser. The bank had been monitoring
activating the display in her glasses. She is for her 13-year-old son. The adviser asks the favourable social media coverage Anna
or revolution? Will authenticated by retina scan, and reviews her whether Anna expects her son to attend the has been receiving and concluded that her
you be ready to serve messages. new flagship online university, or a much business might need additional services.
more expensive residential programme The business adviser has already arranged
this customer? A message from her financial adviser notes overseas. She quickly outlines the estimated for a commercial estate agent and loan
they sold her holdings from a recent IPO and costs and benefits of each, taking into account officer to join them, and they discuss Anna’s
transferred the proceeds into a new African Anna’s age and planned retirement at 70. questions and offer advice on a range of
high-tech fund. She made this decision after She recommends the flagship, and suggests small business topics. She shares that she
consulting with her financial adviser and supplementing her son’s education with less is thinking of expanding her business into
reviewing recommendations from several expensive summer programmes in Mumbai, additional locations, and they explain the
independent investor analytics engines San Francisco and Beijing. Anna agrees, and difference between the bank’s products and
she reached through her bank’s wealth the adviser seamlessly sets up the savings the government small business facility, which
management platform. account and the auto-deposit. offers less service, but a lower rate of interest
and longer repayment periods. Also, Anna is
At lunch, Anna browses the local electronics passionate about environmental protection.
display, where the latest holovision catches The bank recognises this, and through its
her eye. A quick scan from her glasses returns own programmes and partnerships, is able
customer recommendations, coupons and to present an offer where Anna’s use of the
financing offers from multiple providers bank’s products results in direct donations to
including her own bank (which itself has Anna’s favourite charity. She accepts – happy
instantly reviewed the returns from the she has found a bank that really seems to
scan to ensure their offering is competitive). understand her.
She makes her choice and completes the
purchase, using a new peer-to-peer lender
that offers a more competitive rate, due to a
lower cost structure, thanks to a lack of legacy
infrastructure and a less stringent regulatory
regime.
4 PwC Retail Banking 2020

70% of global bank executives believe it is very
important to consider how macro trends will
impact the banking industry in 2020
Executive summary
Powerful forces are shaping the industry
Powerful forces are transforming the retail banking industry. Against this background, 70% of global Executives also differ in their views by
banking executives believe it is very geography. For example, fewer US executives
Growth remains elusive, costs are proving hard to contain and ROEs
important to form a view of the banking think it important to form a view of the
remain stubbornly low. Regulation is impacting business models market in 2020 – to understand how industry in 2020 (61%) than executives in
and economics. Technology is rapidly morphing from an expensive these global trends are impacting the the emerging markets (79%). And many
challenge into a potent enabler of both customer experience and banking system in order to develop a more US executives view non-traditional
winning strategy. new market entrants as a threat (71%), than
effective operations. Non-traditional players are challenging the executives in Asia (42%), where more view
established order, leading with customer-centric innovation. New Executives are divided as to who will be the them as an opportunity (44%) for partnering
service providers are emerging. Customers are demanding ever higher primary beneficiaries of these trends. Just and prospering together. This divide between
over half (54%) believe that large banks will developed and emerging market thinking is a
levels of service and value. Trust is at an all-time low. be the winners in 2020. The other half (46%) theme throughout the survey.
see smaller banks capturing share through
increasing differentiation. Executives are In Section 2 we address these questions
also divided as to the threat posed by non- and concerns, and consider how global
traditional new players: 55% believe they macro-trends will impact the retail banking
pose a threat to traditional banks, while industry.
31% believe they present innovative
partnership opportunities.
Fewer than 20% of executives
feel well-prepared for the future
55% of bank executives view non-
traditional players as a threat to
traditional banks
Figure 1: Importance of considering the banking market in 2020 Today’s challenges Bankers tell us they are working harder than
Unsurprisingly, nearly all bankers surveyed ever before to address these challenges, and
view attracting new customers as one of are consistently being asked to do ‘more
their top challenges over the next two years with less’, given the continued cost pressure
– banks are hungry for growth, and finding facing the industry. ‘Execution, execution,
Emerging
Markets new customers is the first response of a execution’ is the mantra, particularly for
banks in the US and Europe.
61%
USA Europe
79% good product banker. However, banks also
67% recognise the need to deepen their customer
relationships and focus more on specific Priorities for 2020
Asia-Pacific customer outcomes. Hence, enhancing However, the pace of change is increasing
71% customer service is the number one and banks need to do even more to ensure
they are well-positioned to succeed in the
investment priority for banks, globally.
future. Through our proprietary research
The impact of complying with growing and and insights from client engagements, we
changing regulation remains a top challenge have identified six priorities for success in
– indeed the number one challenge for US 2020. They are:
Source: PwC Banking 2020 Survey
and European banks. Unsurprisingly, this
is a top investment priority for banks in 1 Developing a customer-centric business

these regions. Bankers also tell us informally model
that they are still struggling to get ahead
Figure 2: Non-traditional players – Threat or opportunity?
of this challenge and develop a proactive
2 Optimising
distribution
stance with their regulators – to stop seeing
regulation as a burden and start weaving
US 3 Simplifying
business and operating
regulatory compliance into the fabric of
models
their operations.
Europe
In the more rapidly developing Asian and 4 Obtaining
an information advantage
emerging markets, where big, established
Emerging Markets banks have less dominance, bankers report 5 Enabling
innovation, and the
that attracting talent and retaining existing capabilities required to foster it
Asia-Pacific customers in face of fierce competition
and new market entrants are also top 6 Proactively managing risk, regulations
challenges. R&D, innovation and new
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% and capital
product development are the top investment
n Threat n Threat, only if inferior technology n Opportunity priorities in these regions. Despite broad agreement that they are all
very or somewhat important, fewer than
20% of executives feel that they are very

Figure 3: Top 3 challenges Figure 4: Top 3 investment priorities prepared against these priorities, and
only a similar percentage report that
USA USA they are making significant investments 90% of
in these areas.
Regulatory compliance 47% Regulatory compliance 56% executives
Banks universally agree that they are
hindered from addressing these priorities believe that
35% 46%
Attracting new customers Enchancing customer service
by financial, talent, technology and each of these
organisational constraints. Banks need
Increasing customer profitability 33%
Implementing new
technology
30% to take aggressive action to ease these priorities is
Europe Europe
constraints, and manage themselves in a
more agile manner to enable innovation
important;
and transformation, while preserving only 20% of
40% 56%
Regulatory compliance Enchancing customer service their optionality to capitalise on market
opportunities and address unexpected
executives feel
Attracting new customers 33% Regulatory compliance 36% challenges. very prepared
Implementing new
To succeed in this rapidly changing to address them
Loss of trust 31% 27% landscape, banks need to have a clear sense
technology
of the posture they wish to adopt – whether
Asia-Pacific Asia-Pacific to shape the industry, rapidly follow the
leaders, or manage defensively, putting
Attracting and retaining talent 38% Enchancing customer service 51% off change. And they need to have a clear
strategy to deal with these challenges
Attracting new customers 34% R&D and innovation 40% and address these priorities, including
considering partnerships with third parties
and applying lessons from other industries.
New market entrants 25% New product development 34%
Of course, the level of focus on each of them
depends both on a bank’s starting point,
Emerging Markets Emerging Markets
and its unique strengths and challenges.
However, each priority is important, and
Attracting new customers 47% Enchancing customer service 47%
success will come from a balanced execution
across them – and a balance of tactical
Attracting and retaining talent 43% R&D and innovation 36% initiatives and longer term programmes, all
coming together as an integrated whole.
New market entrants 29% New product development 32%
We discuss this further in Section 3.
Source: PwC Banking 2020 Survey Source: PwC Banking 2020 Survey

Impact of global
macro-trends on
retail banking
To help frame the discussion of what banks should do (see Section
3, ‘Six Priorities for 2020’), we first consider the macro-trends that
are shaping the global financial landscape, building upon PwC’s
substantial research effort in this area, Project Blue*. We framed
this research around the following seven trends: global instability,
demographic change, technological change, social and behavioural
change, the rise and interconnectivity of the emerging markets, the rise
of state-directed capitalism and the war for natural resources.
* For further information on Project Blue, please visit www.pwc.com/projectblue

Of course, each of the macro-trends has
Figure 5: Project Blue – Framework and impact on banking landscape
a different impact on the retail banking
industry, as well as on each specific
institution. In this section we consider,
Global Instability
in depth, the following four mega-trends
Adapt
Regulatory environment Fiscal pressures Political and social unrest we consider to have the greatest impact,
although our thinking is informed
by them all:
• Population growth • Changing family structures
Demographic
discrepencies • Belief structures • Rise of state-directed capitalism –
change
• Ageing populations regulation reshaping the industry and
dictating business models.
Project Blue Framework
• Disruptive technologies • Technological and scientific
Technological
change
impacting FS R&D and innovation • Technology will change everything –
• Digital and mobile
becoming a potent enabler of increased
service and reduced cost; innovation is
• Urbanisation • Changing customer
Social and behavioural
• Global affluence behaviours – social media
imperative.
change
• Talent • Attitudes to FIs
• Demographics – changing priorities and
Plan
Rise and interconnectivity • Economic strength • Capital balances

opportunities for growth.
of the emerging markets • Trade • Resource allocation
(SAAAME) • FDI • Population • Social and behavioural change – rising
customer expectations and the need to
• State intervention • Investment strategies regain public trust.
Rise of state-directed
• Country/city economic • SWFs/development banks
capitalism
strategies We also consider potential disruptors to
those trends, and their implications.
• Oil, gas and fossil fuels • Ecosystems
War for natural
• Food and water • Climate change and
resources
• Key commodities sustainability
Source: PwC Project Blue

Rise of state- Nation-states are seeking to better control
their financial systems and the institutions
•
More local markets will close to
outsiders. Traditionally restricted
•
Regulated banking assets will be
significantly smaller than today
directed capitalism – within their borders, as they learn that a markets such as China, India and Korea (adjusted for inflation and GDP), due to
global banking system becomes local in a will be joined by others that limit market the regulatory attempt to significantly
regulation reshaping crisis. Stability is paramount, and central share for foreign institutions through reduce ‘sovereign risk’ through stronger
the industry and banks are heavily involved in managing local regulation and subtle preferences capital requirements. The shadow banking
markets. Regulation is increasingly favouring domestic institutions. This, in industry – absent changes to the rules –
dictating business prescriptive and local in nature. At the same turn, will limit the ability of emerging will continue to grow to fill as much of
models. time, governments are seeking greater
influence over the financial system to
market financial institutions to penetrate
markets outside of their home countries.
the gap as it can, perhaps merely pushing
future problems outside of the regulated
advance various policy objectives including The exception to this will be that regional industry. The pressure on the regulated
the fight against terrorism, promoting and bilateral trade pacts concluded industry will be particularly intense
lending to certain favoured sectors (e.g. over the next five years will drive select in those markets with growing
students, housing, small businesses, opportunities for certain institutions appetites for credit.
national champions), financial inclusion where financial services are included in
and supporting the housing markets. These the scope of the agreements. • B
anking sector size will be more closely
trends, in our view, have a number of correlated to GDP than today. By 2020,
years to play out and impact the nature •
Governments will influence through smaller countries with large institutions
of the industry in 2020. Specifically, we regulation rather than ownership. They will have shrunk their banking sectors,
predict that: will move to privatise state-owned banks relative to GDP, through a combination of
as the impact of politically driven credit asset reduction efforts, business sales and
•
The playing field shifts from global to decisions in the aftermath of the financial subsidiarisation. At the same time, there
local. National and regional institutions crisis is more fully exposed. Schemes will be significant growth
will dominate. Developed-world banks, for lending and government-owned of domestic banks, particularly in
especially in the EU, have been in retreat financial institutions that channelled emerging economies.
to their home markets since the crisis, credit largely based upon policy objectives
and we expect this to continue. Historical will have absorbed significant losses on •
Leading institutions will practise
perceived advantages of global banks, such non-performing loans by 2020, with proactive regulatory management.
as economies of scale (oft sought, yet rarely negative impact on both capital levels and Thirteen years after the financial crisis,
captured), will become outweighed by political support for continued aggressive the relationship between banks and
local regulatory constraints. Local lending expansion. At the same time, banks their regulators will have reached a new
activities will need to be matched more will be increasingly pressured on various equilibrium as banks more fully integrate
closely with in-country deposits. Global social responsibility fronts, including the policy objectives of governments and
banks will be forced to compete on a local fees, affordable housing, and their regulators into their day-to-day
basis – they will focus and double-down on anti-money laundering. business.
fewer markets where they can gain scale,
and they will exit markets where they
10 PwC Retail Banking 2020 are subscale.
Technology will In the last few years technology has rapidly
evolved – big data, cloud computing,
management businesses. In 2020, we predict
the following:
will start to struggle, due to structurally
uncompetitive economics. In heavily
change everything smartphones and high bandwidth are all now banked markets such as the US, we expect
commonplace – and we’ve reached a tipping •
Every bank will be a direct bank; at least 20% fewer branches by 2020, and
– becoming a potent point. Analogies with other industries (e.g. branch banking will be undergoing that this trend will continue to accelerate.
enabler of increased music and video distribution, print media) a significant transformation. As
technology enables every aspect of
Emerging markets will continue to
suggest that ‘digital’ will drive huge shifts develop their physical footprints, using a
service and reduced in industry value – compressing revenues, banking to go online, and as cash growing range of points
usage falls away, traditional branches
cost; innovation is enabling new attackers, redefining service
and crippling the laggards. are no longer necessary. Given their
of presence.
imperative high-fixed cost, branches will need to •

Competitive reach is no longer
We are in the middle of a multiwave become dramatically more productive, determined by branch networks,
trend where digital is first focused on or significantly less costly. Banks have rather by banking licences, technology
optimising current products and services. already reduced staff levels, closed the and advertising budgets. When every
The second wave, where enhanced data most uneconomic branches and started aspect of banking can be done online,
capture and analysis drives more targeted experimenting with new branch concepts. a bank’s target market and competitive
customer offerings and improved services is We expect these trends to accelerate, as arena is no longer defined by its physical
underway. Mobile banking will increasingly customer expectations and behaviours footprint, but by its technology, regulatory
disrupt distribution models (e.g. instant evolve. Branches will remain, but take boundaries and marketing budget. New
videoconferences with product experts) many forms, from flagship information, entrants will no longer have their pace of
and the payments industry (e.g. P2P mobile advisory and engagement hubs (offering expansion constrained by the availability
payments). Advances in security and education, financial advice, full-service of acquisition targets and/or prime retail
verification will enable all aspects of sales, capabilities and community offerings) locations. In developed markets such as
service and delivery to be conducted online. to smart kiosks (offering service, sales, the US, for example, top regional banks
Technology is making it easier for customers cash and video contact with a range of could become viable national players
to switch banks, making relationships much specialists). Leaders will rapidly improve and ambitious foreign entrants with
less sticky. This will drive the third wave, their footprints, reducing branch size resources but without footprint could
where banks and their partners develop and costs, introducing new models and finally compete on a larger field. New
sophisticated profiles on each of their migrating transactions to low-touch entrants could grow rapidly, potentially
customers. digital channels. Digital capabilities creating dozens of new competitors and
will improve, so that branch service refragmenting the landscape. Further, we
The pace of innovation will continue to officers and bank customers use the will see ever-more competition from non-
increase, and leading banks will need to same platforms, with the same look and bank players. Branding and marketing will
enable or leverage this innovation. All of this feel. The human touch will always be be more important than ever before.
will accelerate the evolution of leading banks available, just much more through digital
into customer-centric information and risk- channels. Banks that are behind this trend

• S
urviving banks will be low-cost •
The smart device will grow in • I ndustry utilities will arise in nearly
Technology will producers, with nearly every product
profitable on a stand-alone basis.
importance, and take its place
alongside cards as the primary
every area of infrastructure (similar
to the US ‘bank in a box’ vendors
change everything Conventional wisdom suggests banks medium for consumer payment. The such as Fiserv), as cost pressures and
that engage certain customer segments customer will be able to select between technological advances force banks
– becoming a potent holistically with targeted offerings, account providers (e.g. credit providers, to focus on customer service and
enabler of increased advice and solutions will maintain high deposit accounts) or locally stored risk management, rather than the
margins. We agree. There is a premium value. Acceptance will be universal development of undifferentiated and
service and reduced customer segment that will find this (with common cross-network payment expensive processing and payments
cost; innovation is holistic approach very valuable. However,
new entrants will be offering similar
protocols) and value-transfer instant.
Multi-currency capabilities will become
infrastructures. A number of large banks
with processing scale and efficiency
imperative high-value services, unencumbered by the normal. Customers will be able to make will commercialise all or part of their
massive legacy cost bases of traditional contact payments or send funds to operations and technology departments
banks. So, even those banks targeting any other unique identifier (e.g. email and offer services to other banks. Groups
the highest-value customer segments will address, phone number, bank account, of banks might partner to achieve scale
need to restructure their cost base, while credit card number, etc.). Transfers of and find best practices, combining
at the same time investing in areas such as locally stored value may be both traceable their infrastructure into joint ventures.
customer analytics and compliance data. or untraceable, depending on service Existing technology service providers
And needless to say, those banks targeting provider, as a result, removing removing will significantly expand the services
mass-market customers with simple the last powerful incentives to use cash they offer. Likely examples of processes
products will also be dependent on their – privacy, tax avoidance, lack of access provided by utilities include customer
ability to compete on cost. As the pain of to banking services. Cards will remain authentication, fraud checking, payments’
switching providers continues to decrease, popular, as they are quick, effective, allow processing, basic account infrastructure
customers will become even more mobile easy compartmentalisation of spend and and KYC processing.
– intensifying competition across all don’t run out of power.
segments. Every traditional bank needs
to become the lowest cost producer, and •
Biometrics (e.g. fingerprints, voice
(nearly) every product needs to have recognition) will become commonplace
acceptable returns. Moreover, the lowest in transaction authorisation, but will
cost in 2020 will be up to 50% lower on a remain tied to a replaceable physical
per transaction basis than today, as banks device (e.g. smartphone). Biometrics
redesign their processes and systems for are unique and unchanging, yet can be
the digital age, structurally changing their captured and replicated, so two-factor
cost base and instituting more aggressive authentication (e.g. my fingerprint and
ongoing cost management processes. my phone) will always be required.

•
Most cross-border knowledge
transfer of capital, best practices and
innovations will take place through
new market entrants, third-party
partnerships and intermediaries, rather
than through cross-border banking
institutions. We see a significant rise in
cross-border banking partnerships and
the increasing development of cross-
border service providers and advisers to
fill the intellectual property gap caused
by the shrinking of cross-border banking.
This movement is a direct response to
the localisation of the global banking
system, and the constraints on deploying
capital across different jurisdictions.
More specifically, we predict a growing
mismatch of excess deposits in the
developed world and banks unable to
satisfy consumer credit demands in the
developing world.

Demographics – Demographic changes will provide
opportunities for growth and will require
The global middle class is projected to grow
by 180% between 2010 and 2040, with Asia
• C
ities will continue to grow in
attractiveness – as urban migration
changing priorities innovation to develop new products outpacing Europe by 2015. Over the next 30 creates 1,000m new banked customers,
and services. years, some 1.8 billion people will move into as well as 800m new urban unbanked
and opportunities cities, mostly in Africa and Asia, creating one by 2040.
for growth Developed-market populations are ageing,
driving focus towards savings and investment
of the most important new battlegrounds for
•
Banking the unbanked (urban and
financial services businesses.
and away from credit and consumption. The rural) will become a primary policy
developing world is more mixed. China has By 2020, we expect: objective in both developed and
a similar demographic profile to much of emerging markets, as governments
the developed world, for example, which •
Wealth management will move seek to reap the economic benefits of
explains the reluctance of the Chinese state alongside deposit-taking as a baseline broader access to financial services for
to create more of a credit-based ‘consumer service for retail banking. Banks without their populace. This push will drive
culture’, despite internal and external a strong wealth offering will lose share, as new products and business models,
pressures. Brazil, however, has a much customers take increasing responsibility and will become the primary focus
younger population, and a rapidly growing for their lifelong financial well-being of governmental or state-sponsored
appetite for consumer credit. and planning in both the developed and institutions, particularly where the private
emerging worlds, and look for their bank sector is unable to fulfill the need.
Individual life expectancy is rising, to meet this need.
lengthening expected retirements. For
example, a man born in the UK in 2020 is • F
ee-based revenues will increase as
expected by the government to live for 92 a percentage of total in developed
years vs. 87 years for a man born in 1990; markets and China, as consumers use
and the changes are far more dramatic in longer working lives to save more and
emerging markets. take out less (pay down more) debt, and
as banks favour growing business such as
Public and private pensions will be wealth management and retail brokerage.
restructured, cutting benefits and indexing In developing markets with economic and
retirement ages to life expectancy. social stability, we will continue to see
rapid credit growth.

Social and Customer expectations are being shaped
by their interactions outside of the banking
By 2020 we expect: information and opinion (good or bad)
can be amplified, creating new risks and
behavioural change industry – they increasingly want the type •
Banks will organise themselves around opportunities. Mastery of social media
and quality of service they receive from customers instead of products or will be a core competency.
– rising customer industries that place significant focus on channels. They will offer a seamless
expectations and customer experience (e.g. the ease of use customer experience, integrating sales
and service across all channels. They will
• C
ustomer trust will be returning.
Some banks will benefit significantly
of Baidu, the seamless integration of Apple
the need to regain products across products and channels). develop the ability to view customers from taking a leadership role in the
as a ‘segment of one’, recognising their public debate. The leading firms will
public trust Customers are also increasingly connected uniqueness, and tailoring their offerings have reclaimed at least some of the high
to others across social, geographic and so that customers view banks as ‘meeting ground they lost in the financial crisis and
demographic boundaries. This ‘social world’ their needs’ not ‘pushing products’. begin to reshape public opinion. They will
augments close friends and family as the inform and educate – from mass offerings
primary source of information, opinion and •
Banks (in most countries) will evolve on basic financial skills (imagine a bank-
recommendation. The smallest piece of noise their customer experience to be more led MOOC on finance topics with high
can be amplified massively and instantly. female-friendly. In one US survey, 73% school accreditation) to financial history,
Everything from reputation to purchasing of women said they were dissatisfied with culture and economics, reminding us of
decisions to sales channels is impacted. the financial services industry. Complaints the fundamental benefits of banking to
range from a lack of respect, to being society. All major banks will incorporate
Further, unprecedented numbers of women given contradictory advice and worse consumer education as part of their sales
are heading households, controlling wealth terms than men. Winners tomorrow will process. For customers to trust their banks
and spending, and becoming the primary address this through a combination of they need to feel that banks are acting in
earners. In the US, for example, women branding, product and service solutions. their best interests – common practices
control 50% of private wealth, head one- We expect many more bankers to be such as teaser deposit rates that reset after
third of households, are the primary women in 2020, and many more banks to one year go against this, while the ability
breadwinner in 40% of families and are publicly state this as an ambition. to design your own mortgage and control
increasingly more educated than men. the flow and timing of paperwork is in line
Globally, women control 65% of consumer •
Social media will be the media.
with this thinking. In any case, we see
discretionary spending, and this is set to rise Today, we view social media as co-
conduct risk moving from a largely Anglo-
in the coming years. existing alongside traditional media. By
Saxon concern to a global requirement
2020, social media will be the primary
from an increasingly educated and
Customer trust is at an all-time low, and medium to connect, engage, inform and
empowered customer.
they want their banks to be more socially understand your customers (from the
responsible. They are also concerned about mass ‘social mind’ to the minutiae of
privacy and security, as more of their each and every individual), as well as
personal information and financial life the place where customers research and
migrates online. compare banks’ offerings. And, as today,
•
Cyber security is paramount to intervening – witness Waking Shark II,
Social and rebuilding this trust – winners will
have invested significantly in this area.
the Bank of England-led cyber-attack
wargame, simulating an attack on the UK
behavioural change Recent high-profile security breaches financial system. But simply following
and media commentary surrounding regulatory rules won’t allow the business
– rising customer cyber attacks have generated fear and to keep pace with the constantly growing
expectations and uncertainty, further eroding stakeholder and changing cyber threats. A proactive
trust. There are now higher expectations response is vital. Key priorities include
the need to regain about security of information and privacy identifying and focusing resources
public trust among clients, employees, suppliers and
regulators. Risks range from internal
on the ‘crown jewels’ most in need of
protection. By 2020, leading banks will
misuse of social media to organised have developed cyber-security strategies
cyber-crime (e.g. mass information theft, that are aligned with their business
or denial-of-service attacks). In our recent objectives, risk-management protocols
17th Annual Global CEO Survey, we found and regulatory requirements. Many banks
that 71% of banking and capital markets lack the resources to tackle these issues on
CEOs consider cyber insecurity as a threat their own, and will have partnered with
to their business prospects, more than third parties.
any other sector. Regulation on cyber
security is increasing, and regulators are
71% of Banking and Capital Markets

CEOs see cyber insecurity as a threat
to their business, more than any other
sector. A proactive response is vital.
PwC 17th Annual Global CEO Survey, Feb 2014

Potential disrupters It is always easier to take the trends we see
today and model their impact on the future.
Healthcare and demographics
Do technological advances in health
bank model and accelerate the movement
towards national vs. cross-border banks?
to this future However, a number of ‘big things’ could create quantum leaps in longevity that Does it spur a new era of innovation in some
happen between now and 2020, which could completely change the world demographic countries and regions where alternative risk
reverse or accelerate existing trends or even map? With the possibility of working and management and regulatory approaches
create new ones. living productively for another 20 years (or allow for banks to safely increase lending
longer), do countries with declining fertility and economic growth, or does this simply
Shifting global resources rates have a distinct advantage? What if begin the process of creating the next
For example, what happens if the US those advances dramatically cut the cost of financial crisis.
becomes energy self-sufficient? Or, more care and, by extension, the current health
radically, if technological developments bills and projected health benefit obligations Financial crisis
in shale gas, solar and other clean energy that are constraining economic growth What if the next financial crisis occurs
means that nearly every country could be today? What would this mean for savings between now and 2020? One can see a
self-sufficient? What would that do for rates, demand for products and financial number of potential areas of risk: from the
economic development and how would it institutions themselves as they seek to potential break-up of the Eurozone, the
change trade flows and economic activity? manage their workforces? slowdown in emerging markets, and the
Does this stop or slow the relative rise of sovereign debt crisis impacting most of the
the East and decline of the West or does Regulation governments in the world. Even more than
this allow China to grow without importing We said before that regulation is the most the last one, another financial crisis could be
energy? What do oil-rich, but undiversified important factor shaping banks today. What truly game-changing, not only for financial
economies do when the world doesn’t buy if the regulatory burden on the financial institutions around the world, but for the
their oil and gas? How would financial sector becomes so great that it is impossible post-World War II geopolitical order that
markets react and evolve? Would this simply for the financial system to function efficiently has underpinned the world for the last
accelerate the likely next battle for and effectively? This, in turn, say, constrains 70-plus years.
resources: water? the supply of credit and risk management
tools to the real economy at levels that The bottom line is that the more agile and
War or terrorism support economic growth in some countries innovative institutions will be those best able
Could a war or a terrorist strike with and allow for the payment of sovereign to navigate any significant disruptors.
weapons of mass destruction cause the debt. Do nation-states begin to pull out of
isolation of a significant country or region international agreements such as Basel III
and create two or more blocs of financial and ‘go it alone’ for economic survival, so
systems in the world? Could a financial they can loosen the constraints and gain
institution operate in both? Would they be short-term economic advantage? Does this
allowed to by their home governments? begin to unwind the improvements in global
regulatory cooperation and consensus-
building, post the financial crisis and
further fracture the cross-border universal
Evolution and So let us take stock. ROEs, while improving,
remain at or below the cost of capital in
Much has been written about the current
banking competitive landscape and the
In short, banks need a clear strategic vision,
and they need to do things differently.
disruption – an much of the world. Growth remains elusive. models that successful banks are following
Regulatory reform, from liberalising rates or should adopt in the future. For example, In the next section we discuss how.
imperative for in China, to capping card fees in the US, is should one focus on wealthier sophisticated
change impacting revenue streams. Efforts to cut customers and offer a complete and high-
costs have not been transformative and margin complex product set? Or perhaps
compliance costs have risen. Bankers admit concentrate on delivering simple banking
that today’s execution will not be sufficient products at the lowest cost, leveraging direct
(even as it is necessary), and that much more distribution channels? Or seek the benefits of
needs to be done. being the largest scale player?
The industry is at an inflexion point. In 2020, we expect to see new models and
Changing customer expectations require fiercely disruptive competitors. For example,
significant investment. Technology may what if a leading social network chose to set
render much traditional infrastructure up a banking and payments business? Or if
obsolete while enabling superior service, a leading search engine was to emerge as
growth and new competition. Bankers a global crowd-sourcing platform, raising
understand that the operational complexity funds and then voting on which competing
of the past needs to be addressed to provide enterprises should benefit?
the efficient, effective platform for the
future. We don’t believe the future is clear enough
to present a complete and detailed analysis
Banks need to get ahead of these challenges of business models, market shares and
and retool to win in the next era of margins of all players. In a way, that isn’t
competition. This is imperative, and also the point – particularly given the high levels
a tremendous opportunity. Banks need to of uncertainty. Rather, we encourage banks
make hard choices about which customers to be thinking today about this disruptive
to service, how to win and where not to play. future, and developing their own plans for
They need to rebuild their organisations success, plans that include developing agility
around the customer, simplify and and optionality – the characteristics that
structurally reduce cost. They need to learn create value in times of uncertainty. These
to be agile, innovative and adaptable in order plans should address today’s imperatives,
to execute effectively. contain a clear vision of the bank in the
future and be adaptable enough to change as
the world continues to evolve.

Six priorities
for 2020
Each bank needs to develop a clear strategy to deal with this
transforming landscape. They need to decide whether to lead, to
follow fast, or to manage defensively, putting off change. They need
to create agility and optionality, to adapt to rapid change and future
uncertainty. Yet, whatever the chosen strategy, success will come from
successfully executing the right balance across the following
six priorities.

From our work with leading players Yet, whatever the chosen strategy, it will
Figure 6: Six Priorities: Significant gap between preparedness and importance
worldwide, from our research into the involve executing a balance across these
macro-trends impacting banking and from six priorities.
our survey of global banking executives, we Customer-Centric Business Model
have identified the following six priorities for Banking executives agree that these
retail banks to win in 2020: priorities are very important, with each Optimised Distribution
of them scoring between 4.3 and 4.5 (out
of 5) in our survey. However, we found a Simplification
1 Developing
a customer-centric business
model. striking gap between those ranking these Information Advantage
priorities as ‘Very important’ (46%–64%)
and those stating that they saw themselves Enabling Innovation
2 Optimising
distribution.
as ‘Very prepared’ (11%–17%) and/or that Proactively Managing Risks
they were making a ‘Significant investment’ and Regulation
3 Simplifying
business and operating (18%–25%) in these areas. Technological, 0% 10% 20% 30% 40% 50% 60% 70%
models. organisational, talent and cost constraints
were viewed as the greatest obstacles n Very prepared n Significant investment n Very important
4 Obtaining
an information advantage. to success.
5 Enabling innovation, and the Below, we discuss each priority in turn.

In this short paper we can barely scratch
capabilities required to foster it.
the surface of these complex issues. We
welcome the opportunity to have a deeper
6 Proactively
managing risk, regulations
conversation with you on these topics, as
and capital.
well as on crafting your overall strategic
Every bank needs to develop a view of the response.
future landscape, and the uncertainties
surrounding it. Every bank needs a clear
view of its own unique strengths and
challenges. And every bank needs to
develop its posture against this evolving
and uncertain future. Every bank needs
a clear strategy.

Our Fiercest Competitor
Workshop is a powerful and
practical tool to rapidly craft
an integrated strategic response
to these evolving forces
Part 1: Fiercest Strategy

Discuss industry perspectives, gain insights on
Designing your It’s hard to take big-picture trends and
priorities, and translate them into tangible
•
Design your fiercest competitor(s).
We ensure participants take an end-
market challenges and potential disruptions
Result: Quickly get past biases that may
Fiercest Competitor. actions. It’s even harder to be unreasonably to-end perspective, and define their distort your market view and cause you to miss
aspirational, yet realistic in what can be fiercest competitor – a competitor with potential competitors
Mastering change achieved. Designing your fiercest competitor disruptive strengths that ruthlessly
by making it real. is a concrete way to tackle these abstract exploits your weaknesses. We design this
ideas – and identify how and where you need competitor in a variety of different future
to change, to thrive in 2020. scenarios. We define a fiercest strategy
(value proposition, sources of sustained Part 2: Fiercest Business Model
PwC has worked with dozens of clients to advantage, where to compete) and a Design the Fiercest Competitor and strategies
re-imagine their companies in a practical, fiercest operating model (organisation, for a new business model
results-oriented way. In a way that leverages processes, technologies, culture), so that Result: Rapidly assess impacts to your
the ambitions and insights of your top team, you fully understand how these new business model, and determine the best strategic
and helps build real alignment as to the players will win. path forward
path forward. In a way that doesn’t take six
months and millions of dollars. •
Make it real. Finally, we translate the
insights gained from designing the
Imagine a series of facilitated workshops fiercest competitor into tangible actions
where your business and functional leaders for your own business. First, teams gain Part 3: Closing The Gap
are asked to think differently, to move a heightened sense of priority – and Make the organisation become the Fiercest
beyond the incremental and imagine what decide to accelerate existing initiatives Competitor
could be. And then translate these insights and abandon others, so as to focus Learn to quickly work through business model
into realistic actions. Actions that have scarce resources in the most critically challenges
been debated and agreed across business competitive areas. Second, teams Result: Avoid polarising viewpoints while quickly
and functional silos. This is ‘Designing your imagine new third-party partnerships. identifying and resolving the root causes of
fiercest competitor’. And finally, teams begin to develop ideas problem areas
for disruptive business designs – ways
• C
atalyse provocative thinking. We
to change their own strategy (where to
analyse industry trends and drivers,
compete) and operating model (how to Part 4: Prioritised Path Forward
and assess their importance – to ensure
compete) – to attack the market in similar Turn the discussion takeaways into action items
a shared understanding of the industry
ways to the fiercest competitor. Gain expertise in roadmaps, mobilisation, and
landscape. We develop aggressive and
disruptive scenarios – and then use them execution
to provoke your leadership team into re- Result: Work through challenges and prioritise
the solutions as part of a long-term go-to-market
imagining the business. strategy
Developing a
customer-centric
business model Much has been written about the need to Banks struggle to join the dots internally
1
use. They want to feel like their bank is
develop a more customer-centric business and prepare bank-wide views of a customer anticipating their needs, not bombarding
Banks today have a simplistic model. And many banks have been relationship, let alone integrate external them with product offerings. They want
understanding of their customers investing in improving the overall customer sources of data. And, as such, risk and credit transparency and no surprises in terms of
and a vastly complex product experience. But few (if any) have attempted decisions are typically taken at the product fees. Today’s definition of first-class service,
the sort of wholesale transformation of their level, not at the customer level. which most banks are a long way from
set. The winners of 2020 will operating model which we believe necessary delivering, is rapidly becoming a baseline
turn this on its head. They will to win in 2020. Many banks carry vast product sets, with expectation. And banks know that better
subtle differences, frequently not appreciated customer experience leads to greater loyalty,
develop a much more complete
Our survey indicates a growing awareness, by customers. This comes with a consequent advocacy and revenues.
understanding of their customers but a significant gap in preparedness. cost in operations, technology, service and,
and dramatically simplify their Sixty-one percent of bank executives say that at times, risk and regulatory challenges. The winners of 2020 will develop a much
product set, and so deliver a a customer-centric business model is ‘very Systems are not modular in design, so that deeper, holistic understanding of their
important’, and 75% of banks are making each variant adds to this complexity and customers. They will need to acquire,
significantly enhanced customer investments in this area (this pattern is cost. Legacy products, no longer offered integrate and analyse multiple sources of
experience with lower levels of consistent globally). Yet only 17% feel for sale, are rarely discontinued. And every internal and external data. They will be able
operational risk. Begin with ‘very prepared’. bank customer has experienced the thrill of to understand their customers’ needs, and be
understanding customer needs, being passed from call-centre operator to present with a relevant solution at the time
Banks today typically do not know their call-centre operator in the vain hope that of need. They will simplify their product sets.
not with products and pricing. customer very well. Now, at the product one of the them can solve the problem, And they will redesign their core processes
level, many banks have invested significantly that is if they can figure out how to talk to from a customer point of view.
in customer analytics – plenty of credit a real person at all. No wonder customers
card providers, for example, understand are frustrated and regulators are concerned Further, they will (re)answer the most
a customer’s value potential, can track about fair customer treatment. fundamental questions of who are their
spending patterns and make targeted target customers, what is their value
offers. Yet, many still send customers Yet, even as banks invest today to address proposition to those customers and what
multiple product offers in the hope that these issues, the bar just keeps on rising. competitive advantages will distinguish them
something will stick. And few can analyse Customers are redefining their expectations, in the marketplace. A bank does not need to
a customer’s deposit account, see that his taking their cues from other industries that be all things to all people to succeed.
salary deposit has increased, and send a offer multichannel access, product simplicity,
note congratulating the customer on his seamless integration and ‘segment-of-
or her promotion together with an offer of one’ targeting. They want convenience,
a premium card and a higher credit limit. personalisation, accessibility and ease of
Figure 7: Areas of significant effort over next 5 years
Enhancing customer data collection 54%
Evaluating bank performance

metrics and best practices from 53%
customer viewpoint
Allowing for increased customer
choice in configuring product features, 50%
including pricing
Using social media to monitor

48%
customer preferences
Conducting customer segmentation
using a dedicated group that supports 44%
strategy development across
Offering a mix of self-directed and
personal interaction channels 41%
to customers
Creating a flexible and agile product 38%

portfolio adapted to customer segment
Creating and filling an executive-level 15%

Customer Strategy Officer position
0% 10% 20% 30% 40% 50% 60%

Executing on today’s In our paper ‘Experience Radar 2013
– Lessons from the U.S. Retail Banking
• H
elp your story get told. Customers
can become your best marketers. Look
imperatives. Industry’, we describe the actions banks to your staff to make this happen. Fifty
should take to ensure a memorable customer percent of recommendations are due to
Better customer experience. We see these lessons as broadly good experiences, not to rates or products.
applicable across the globe. Identify key influencers among customers
service is rapidly to serve as brand advocates – promoters
becoming a baseline •
Win the fee war. Fees and rates dominate
the banking experience – they are the
account for 80–90% of positive word of
mouth. Manage social media exposure –
expectation, yet most number one driver of customer purchases, one in four customers share experiences
and two in five bad experiences touch
banks are far from on rates and fees. Frequent changes
this way.
delivering it. Here’s have frustrated customers. Mitigate this •

Go digital. Customers want to interact
frustration with better communication whenever, wherever. Give them the
how to do better. and more customer-friendly fee strategies. convenience they seek through digital
tools. Sixty-one percent of customers
• F
ix the bad, fast. Customers want to feel want to research on their own, and 42%
like their bank is working with them, not buy on their own without help from
against them. Don’t let customers walk representatives or experts.
Experience away with a sour taste in their mouth.
Radar 2013 Two in five customers leave banks after •
Balance automation with the human
Lessons from the U.S. Retail
Banking industry a bad experience, and 45% of those will touch. Sixty percent of great experiences
Locating the sources
of value behind truly
exceptional customer
actively discourage others from using that are due to great staff. Twenty-five percent
experience
November 2012
bank. Turn issues into opportunities to of customers rely on staff to do research,
build loyalty. Empathy and an apology go 46% to select products and 63% to resolve
a long way towards satisfactory problem their problems. Create a multichannel
resolution. Identify these negative strategy that balances cost and service.
volume 1 experiences and work to remove Encourage self-service for routine matters,
the causes. and refocus branch and contact centre
staff on higher value-added activities like
relationship building and sales.

Optimising
distribution
The coming revolution in branch banking and
2
Historically, banks with the best Figure 8: Optimised distribution
the need to optimise distribution networks
branch footprint have dominated is clearly top of mind for banking executives.
their markets, gaining outsized Eighty-five percent of respondents see Global Banks
share. By 2020, all banks will be optimising distribution as important, 71% are
making investments in optimising distribution National Commerical Banks
direct banks, and branch banking
(with an additional 22% expecting to do
will be changing fast. Leaders so in the near future). Globally, 82% of
State-Owned Banks
will offer an anytime, anywhere respondents feel that their organisation’s Regional Banks
service, fully utilising all banking distribution model needs to change (90% in
emerging markets). Community Banks/ Credit Unions
channels in an integrated fashion.
Non-Traditional Retail FS
They will be re-imagining their Fifty-nine percent of respondents expect the Providers
physical footprints, introducing importance of branch banking to diminish 20% 10% 0% 10% 20% 30% 40% 50%
significantly as customers migrate to digital
new branch formats, expanding
channels, and 48% expect branch banking to n Most threatened n Benefit most
physical points of presence change significantly by 2020. Yet, only 16%
through third-party partnerships, of respondents viewed themselves as ‘very
driving sales and cutting costs. prepared’ for this shift. Respondents globally
view the largest banks as benefitting most
As transactions and sales shift from these changes, and smaller regional and
to digital channels, branches aspects of banking to be conducted online. reduced staff – from 13 FTE per branch in
community banks being the most threatened. And customers’ expectations are evolving 2004, to an average of less than 6 today).
that cannot create incremental in tandem. They want to transact at their New, digitally focused, competitors are not
Banking was once all about real estate – banks
value will need to close, or be were located in prime locations and built to convenience, with information and advice at so encumbered.
transformed. project strength, stability and safety. ATMs, their fingertips. Even many of those who value
the privacy and face-to-face interaction you Quite simply, distribution is ripe for digital
telephone banking and then the internet – all
find in a branch, will soon demand this from disruption. The transformation of the music,
provided added convenience and expanded
their office or home. They do not want to be film and print publishing industries provide
a bank’s reach. But real estate still rules
forced to travel nor wait in line. chilling analogies for those banks unable to
supreme, and many products still require
get ahead of this trend.
customers to transact through a branch Further, branch network costs are very high,
We are now at a digital tipping point, with with few easy ways left to reduce them
rapid technological advances enabling all (for example in the US, banks have already
The vast majority of banks aren’t there yet. The value of a branch will need to be though many transactions will continue to
Optimising But the leaders understand these dynamics
and are moving fast, experimenting with
redefined. There will be different models,
tailored to specific purposes – for example,
be ‘in store’, just conducted through smart
ATMs, tellerless kiosks and touchscreens.
distribution new concepts. By 2020, banks will manage flagship stores, community centres and
distribution holistically. Products will not be expanded ATMs. ‘Flagship’ branches will In developed markets such as the US, leading
built-into, or serviced through, the channel: offer information, education and advice to banks in 2020 are likely to have a far greater
rather, banks will develop shared platforms drive engagement, loyalty and sales. We number of physical points of presence and
that distribute products across all channels. would expect them to host events, such as far fewer ‘traditional’ branches – perhaps
Future in-branch advisers will use the same a seminar on ‘The challenges of growing a as many as 20% fewer across the industry,
technology and infrastructure available to small business’, with small business advisers with the trend accelerating through 2020 as
bank customers. “Let me help you open an and product specialists on hand for questions leases roll off.
account sir? You want to do it yourself? Sure, and drinks after. They will be in high-
In developing markets, where branch
just go online – you can borrow my tablet, or value high-traffic locations. ‘Community’
networks are thinner, physical distribution
use one of the touchscreens. You have your branches will be smaller in scope, focused
will continue to evolve, and banks are
own? Terrific, take a seat and let me on community outreach and engagement
more likely to partner with new entrants to
get you a coffee.” Every bank, whether in (e.g. offering financial education and
create alternative distribution channels (for
the developed or developing world, will wealth-management advice). ‘Expanded
example, M-PESA in Kenya, handles deposits
be a direct bank. ATMs’ will be in-store or in other well-
and payments using a network of agents and
trafficked sites, and as valuable as marketing,
customers’ cellphones and is used by two-
sales, transaction and cash-handling
thirds of the adult population).
points – perhaps even with dedicated staff.
Partnerships with third parties will enable These trends are inevitable, and banks
banks to further expand their reach with today need to choose what path they want
significantly lower real estate costs.
Distribution is ripe for digital to follow. What is your future distribution
vision? At what pace do you want to change?
disruption. The transformation of Advisers and product specialists will be
present in all types of branch – in person, or
Do you push aggressively to precipitate this
the music, film, and print publishing by video from centralised advisory offices –
change and capture advantage, through
digital optimisation, alliances, partnerships,
expanding sales’ reach. Tellers will need to
industries provides chilling analogies evolve into financial advisers, fluent in all
spin-offs, closures – or manage defensively to
postpone the inevitable.
for those banks unable to get ahead bank products – a massive transformation
of skills. Banks will likely need to simplify
of these trends. their product sets – for the benefit of both
employees and customers. Transaction
processing will be almost entirely digital –

Executing on today’s In our paper, ‘Rebooting the Branch:
Reinventing branch banking in a multi-
•
Design an optimised distribution
network that supports the needs of the
imperatives. channel, global environment’, we discuss local markets and scales to the density of
the evolution of branch banking in detail. market opportunity – meeting customer
High-cost branches Leading banks are moving away from
needs and minimising the cost of delivery.
cannot survive in ‘managing branches’ and instead are •

Develop intuitive, experience-driven
their traditional ‘managing distribution’ across all the bank’s
channels including evolving branch models
individual branch designs, based upon
a deep understanding of customer needs,
form. Evolving the to balance local-customer needs with the behaviours and usage.
high cost of branch delivery. They are
network today to designing their branch strategies to deliver a •
Redefine the operating model including
align with changing differentiated experience, based on customer the organisational structure, branch
processes and infrastructure – to support
needs, the competitive landscape, brand
consumer behaviours promise and internal capabilities: the branch model and network design.
and economic • B
egin by focusing on the customer •
Develop cross-channel enablers
realities can help experience, answering the question: Who to deliver a seamless and consistent
customer experience – regardless of
are we and what kind of bank do we want
banks position to be? Consider customers, competitors, branch model mix.
themselves for the brand and capabilities.
future. Here’s how. •

Choose an appropriate mix of branch
models to support the desired customer
experience. We see various models being
experimented with today – assisted self-
service, in-store branches, full-service
branches, community centres and
flagship stores.

Simplifying the
business and
operating model Banks have developed staggeringly complex
3
Figure 9: A majority of executives believe they need to simplify
and costly operating models. Often, each
Banks have developed staggeringly product has separate operations, technology
complex and costly business and and risk management processes. And banks Products
operating models. Now they typically have a multitude of products, many
not even offered to new customers, all of Channels
must simplify. Rising customer which require some kind of operational
Prices/Rates
expectations, increasingly customisation to serve. In several cases we
active regulators and stagnant have found that only 5% of products deliver Technology
over 80% of revenues and an even larger
shareholder returns demand Processes
percentage of profits. Further, many banks
it. Efforts to date have not been have been built over decades of acquisitions, Back Offices
enough. Start with the customer and new product and channel development,
and work backwards – simplifying typically with each development adding 0% 10% 20% 30% 40% 50% 60% 70%
additional systems, processes and costs. Few
the experience requires that have tackled the difficult and expensive work n From a customer perspective n From an internal perspective
products, channels, organisation, of integrating, optimising and simplifying Source: PwC Banking 2020 Survey
operations, all simplify and their platforms.
change. This is a big deal – but A majority of banking executives (53%)
getting it right can deliver an believe that simplification is very important, This complexity and redundancy drives poor Since the crisis, banks have been fighting
improved customer experience, and 70% are making some level of customer experience, high cost, operational hard to cut costs. Headcounts have been
structurally lower cost and reduced investment in simplification. Yet, only 17% risk, employee frustration and regulator significantly reduced, belts tightened.
feel well-prepared. Taking a customer unease. And the traditional separation Every bank has launched re-engineering
levels of operational risk. perspective, a majority of executives between customer-facing activities, and efforts with some considerable successes.
believe their banks must simplify products, operations and technology means few Yet, expense ratios remain stubbornly in
channels and prices/rates. Taking an internal business leaders are strong end-to-end line with pre-crisis levels as regulatory
perspective, a majority of executives believe managers who understand sales through implementation costs continue to rise.
they must simplify their technology, their delivery. Indeed, we frequently hear of And with higher capital charges, ROEs
processes and their back offices. Bankers business leaders complaining about their remain depressed. Customer demands and
believe that simplification will lead to operations and technology cost allocations, competitive intensity are both increasing.
better service, lower costs and increased instead of managing them. Banks need to do something different – more
profitability. of the same is not enough.
Figure 10: Bankers believe simplification will... processes and their technology platforms.
Redesigning the bank operating model
requires a fundamental shift in how retail Financial
banks think about their operations – product institutions
simplification; integrated distribution;
Improve service 69%
shared service infrastructure; risk globally believe
management at a customer not product level;
streamlined compliance processes.
simplification
Improve profitability 59%
will deliver
Finally, banks need to arm their executives
with information and tools to continuously a myriad of
manage costs, once the new models are
put in place. Too often there is insufficient
benefits.
Decrease costs 58% transparency around unit costs, cost drivers
and what is best in class.
The most successful banks are learning from

other industries. Many consumer products
Increase customer base 46% companies (Adidas, Apple) do not own
the entire value chain. They focus on what
makes them distinctive – product design,
marketing, distribution – and contract out
Improve time to market 42% much of the rest to third-party specialists.
Leading banks will know their customers
intimately; they will design solutions to meet
their needs, provide advice and capital, and
manage risk. Much of today’s infrastructure
is not a source of competitive advantage.
We expect the continued rise of industry-
wide or multi-bank utilities – with more
A strategic redesign of bank business and Banks need to start with the customer banks outsourcing processing activities.
operating models is needed – a major and ensure they truly understand what We expect leading banks with scale to
simplification and automation – to enhance customers want, and what they are unhappy insource effectively from others, or create
customer experience, structurally reduce with. They need to consider their business independent utilities to do so. If customer
costs, reduce operational risk and prepare for models in light of this – the package of and risk skills are the core of future banking,
the next era of banking. products and services they offer. They then the entire manufacturing process is a
need to consider their organisational candidate for outsourcing.
capabilities and alignment, their operational
Leading banks will make simplification a Banks that get this right will achieve
Simplifying the priority. They will strategically redesign
their business model, end-to-end. They will
dramatic results. In our experience, by
taking such an end-to-end perspective, we
business and develop multi-year change programmes. have seen clients realise 50% performance
And they will ensure that they have the enhancements on key customer metrics,
operating model organisational capabilities necessary to together with 25%+ cost reductions and
achieve the change. reduced levels of operational risk.
Figure 11: Banks that move towards solution-oriented integrated operations will be the winners in 2020
Current State Current State

Product-oriented, siloed operations Solution-oriented, intergrated operations
Need 1 Need 2 Need 3 Need 1 Need 2 Need 3

Products
Products Products Products Solution 1 Solution 2 Solution 3
Channels
Regulations
Channels Channels Channels Integrated Compliance
Market, Credit, Reputational and Operations Risk

Risk Risk Risk
Operations Operations Operations
Shared Operations
Operations Operations Operations
Applications Applications Applications
System System System
Applications Applications Applications Shared Applications

Executing on today’s Our client, a global provider of financing
solutions, was facing the familiar pressures
This tried and true approach yielded real,
rapid benefits. And it realised sufficient
•
Managed the deployment to success.
Developed critical programme
imperatives. of rising customer expectations, increased savings to enable our client to then reinvest management, change management and
cost of capital, growing competition and in transforming the underlying technology continuous improvement infrastructure.
Banks need to ongoing pricing pressure. Like many players, platforms – so enabling even greater savings. Created a detailed incentive structure
they were highly siloed by functions, to align the performance framework
dramatically simplify businesses and products. Turnaround The critical elements of our approach with strategy. Established performance
their business and times and error rates were higher than included: management, monitoring and reporting –
they desired, driving too many customer with KPIs and detailed information. Built
operating models complaints. Their cost-to-serve was higher
•
Developed a detailed current state
understanding. Conducted voice-of-the-
organisational capabilities – trained over
to enhance customer than the industry average. Processes were
non-standard and involved multiple hand-
customer analysis to align customer needs,
50 client leaders on internal continuous
improvement, to facilitate empowerment
service and offs. Employee satisfaction was low.
value proposition and service delivery.
Leveraged lean to identify current state
and build culture of improvement.
structurally reduce Over an 18-month period we helped issues and opportunities. Analysed spans,
layers, location and headcount to identify
cost. We leveraged them design and deploy an innovative
new scalable and sustainable operating gaps and opportunities. Conducted
our battle-tested model, in this case without touching the competitor benchmarking to inform and
underlying technology platform. It achieved underscore case for change. Conducted
Strategic Business results. They reclaimed 50% of sales team stakeholder readiness analysis – to inform
Design approach time to focus on revenue generation. They change management strategy. Developed
robust and realistic business case.
reduced cost-to-serve by 25%. Processing
to help one client performance improved 45%. Turnaround
•
Designed and tested the revised
achieve precisely times and error rates have reduced
significantly. Processes were standardised,
operating model. Leveraged lean to
that. and handoffs reduced (from an average 20 to
redesign and optimise processes, and
develop a revised operating model.
3). Customers and employees are happier.
Streamlined processes, and functionally
aligned the organisation. Conducted
‘wargame’ simulations to test the new
processes and provide baselines and
targets for the revised operating model.

Obtaining an
information
advantage Customers (and banks themselves) now customers grow accustomed to forgo some
4
Banks will use these capabilities to create
generate exponentially more information degree of privacy for proven value. an enhanced and connected customer
Getting this right will be a game- than ever before. Leading players will experience – to understand a customer’s
changer. Fast movers will create harness both structured and unstructured Leading players will develop advanced need and be present at the time of need with
information – from traditional sources (such analytics capabilities to integrate this a relevant offer. For example, spotting that
competitive advantage in every vast library of data, analyse it and create
as credit scores and customer surveys) and a current bank customer is walking into a
area of the bank – customer from non-traditional sources (such as social actionable insights. 57% of bank executives car showroom, and sending a message that
experience, underwriting media, and cross-channel bank customer consider these capabilities to be very the customer has been pre-authorised for
interaction data). They will ‘wire’ their important (with 92% considering them very financing (based upon analysis of existing
and pricing, operations, risk
own operations to build the information or somewhat important). Three-quarters accounts and spending behaviours).
management and financial/ of institutions are making investments.
rigour more typical of the manufacturing
cost management. Few banks industry. And they will collect and purchase Yet, only 17% believe they are very well- Banks will enhance their credit, risk and
will be able to master the skills other behavioural data (such as mobile prepared. pricing models (adding, for example, social
location and purchase data) – particularly as media reputation scoring). For example, a
to integrate, analyse and act bank may be able to detect the beginnings
upon the insights from the ever- of trouble at a small business, well before
increasing mass of data. Executives receivables and turnover start to show signs
expect the largest banks to be the Figure 12: Advanced analytics – Who will benefit, who will be most threatened of weakness, by identifying negative trends
in social media – enabling a much higher
winners. We expect third-party quality of risk management and customer
providers to emerge to help Global Banks
service.
the others. National Commerical Banks
Finally, banks will develop a much more
State-owned Banks sophisticated view of their cost structures
Regional Banks and the key drivers of that structure.
Community Banks/ Credit Unions
They will use analytics and benchmarks
extensively to constantly measure
Non-Traditional Retail FS Providers
performance with defined metrics and ‘best-
Banking Platform Providers in-class’ competitors.
30% 20% 10% 0% 10% 20% 30% 40% 50% 60%
n Most threatened n Benefit most

Bank executives (54%) expect only the
largest global and national banks to master
this capability – in line with their capacity
to invest. We expect those players to gain
significant competitive advantage, until these
capabilities are available to all. Other banks
will need to forge partnerships with third
parties to match this advantage. We expect
innovative service providers to emerge and
assist smaller banks in competing with larger
institutions. Among others, we expect today’s
technology services providers to develop
these offerings – it will not be enough
in the future to provide technology and
processing platforms, without information
and analytics. This will enable the rest of the
banking industry to catch the leading players
and reduce their early advantage.
To master these capabilites, banks will need

to learn how to create an open, agile and
innovative organisation. They will need
to attract and retain a new sort of talent
(seen by executives as the biggest barrier
to success). They will need to pay more
attention to foundational data management
and data governance.
Building these capabilities will create

significant advantage in the near/
medium term, and be critical to successful
competition in 2020.

Executing on today’s Social media has created both opportunities
and risks. Opportunities include greater
One client wanted to capture these
opportunities and manage these risks
•
Peer benchmarking – allowing volume
and sentiment comparisons across a series
imperatives. engagement and proactive risk management.
For example, 90% of customers trust
– developing actionable insights and
recommendations well beyond their existing
of categories, and enabling focused issue
identification.
recommendations posted on social media capabilties. We helped them, leveraging our
Understanding websites, and 71% are more likely to make a SocialMind toolkit. This combines best- •
Trend and control analysis – allowing
identification of anomalies and variances
and Leveraging purchase based upon social media referrals.
Banks can gather customer feedback to
in-class social, web and text listening, and
analytics capabilities, leveraging both project- from the normal range of volume mentions
and sentiment ratings, and enabling
Social Data. Social generate leads, tailor products, improve
customer experience and spot trends earlier.
based analysis and ongoing tools.
identification of root causes.
phenomenon, along And leading indicators can enable banks Our client identified loan modification issues
at competitors, enabling its own proactive •
Early warning radar – allowing
to spot operational risk breaches, and identification of emerging issues and topics
with other trends, proactively address reputation issues early. operational management. They identified
a fake bank website scam, and took steps ranging from regulations to customer
However, social media also brings greater
has shifted the risks – lower bargaining power and influence, to proactively manage complaints and experience to operational risk, as measured
by acceleration in volume or sentiment.
their reputation. They identified customer
balance of power and greater risk of brand damage. Customers
are empowered to voice grievances widely, complaints about loan transfers, and used
these inputs to enhance their product. They
to consumers, and have much greater transparency to
features and price. set up the following new capabilities:
accelerating the
need for greater PwC’s Integrated SocialMind Platform
engagement. PwC’s Data Aggregation Analysis & Synthesis Actionable Insights

SocialMind can Social Data Emerging Trends
deliver actionable Once upon a time

Once upon a time
Once upon a time
insights from social Once upon a time
Once upon a time
media. Natural Language
Processing Taxonomy Model Peer Benchmarking
Electronic Data
Monitoring & Alerts
Customer Sentiment PwC SME Insights

Scoring

Source: PwC
Enabling innovation,
and the capabilities
required to foster it Innovation will be the single most important
5
Figure 13: Open innovation – importance and preparedness
factor driving sustainable top- and bottom-
Innovation is the single most line growth in banking over the next five
important factor driving years. Innovation is doing things differently. Emerging markets
sustainable top- and bottom-line Not just new products or a new customer
experience, but doing things differently
growth in banking. But banks across the entire business model including
USA Europe
18% 62%
today are not known as places transforming the business model itself.
where innovation thrives, nor 7% 28% 6% 40%
Innovation within the banking industry
are they the favoured destination is considered to be somewhat or very
for top software engineers and important by 87% of respondents, yet in Asia-Pacific
other innovators. Banks need to stark contrast, only 11% believe they are very
prepared. And there are significant regional
organise and manage differently differences – over 60% of executives in Asia- 14% 61%
– protecting and enabling Pacific and the emerging markets view open
talent, becoming agile in their innovation as very important; however, only
development processes and being 40% of European executives and 28% of
US executives agree. We believe developed
open to partnerships with outside world executives need to take more of an
institutions. Developed market emerging markets view of the importance n Very prepared n Very important
executives will need to take more of innovation, particularly once the new
of an innovative mindset. regulatory framework stabilises.
Executives believe that the large global and

national banks will benefit most and that
smaller community banks and credit unions and core platforms (52%). In Asia-Pacific, place more focus than other markets in every
will be the most threatened. there is much less focus on interfaces and area (all above 64%), with the greatest focus
channels (44%), likely reflecting the greater being on innovating their core platforms
Executives report that their main focus penetration of mobile banking, and much (67%).
areas for innovation are customer interfaces more focus on customer need identification
and channels (57%), followed by customer (59%) – to help create that enhanced
need identification (53%), products (52%) customer experience. The emerging markets

Banks are not today known as hotbeds of Figure 14: Area for innovation
Enabling innovation, innovation. While the sector has had its fair
share of innovation over the years, today, US
and the capabilities banks tend to be cautious, bureaucratic, Products 43%
and subject to multiple layers of process
required to foster it and stifling levels of oversight. Executives Customer Interfaces/Channels 60%
recognise they need to do things differently.
Over 50% are planning to enhance their Core Platforms 50%
internal capabilities to foster innovation,
Customer Need Identifications 40%
and to create innovation management
teams across business units. Perhaps most
Europe
importantly, there is a recognition that
partnerships and third-party relationships Products 54%
may be the best way for banks to reap the
benefits of innovation. Customer Interfaces/Channels 54%
To succeed as innovators, banks will need to Core Platforms 44%
organise and manage themselves differently.

Talent. Banks need a new type of talent

and a new way of managing it. They need Asia-Pacific
to attract people who think big and who Products 48%
challenge the status quo, people who are
obsessed with the customer and not with Customer Interfaces/Channels 44%
the process. Banks need to enable them to
succeed. These people need inspirational Core Platforms 46%
oversight and cultivation, not check-the-box

management. They may need to be managed
outside of the existing corporate structure
Emerging markets
– with different reporting lines, different
measures of performance and even different Products 64%
office space – asking people like this to report
to the typical bank IT project manager or Customer Interfaces/Channels 65%
embedding them one by one in the business

Core Platforms 67%
is likely to lead to failure. Many banks have
set up dedicated innovation labs outside of Customer Need Identifications 64%
their head offices to accomplish just this.
Agile development. Banks need agile
product and technology development skills
– to bring new products and capabilities
to market much quicker than today. This
requires continual iteration, real-life pilot
testing and rapid learning from customers.
This does not require writing and rewriting
business requirements documents, 12-month
product release cycles, or technology
organisations far removed from the
customer.
Partnerships. Major innovations are

taking place outside traditional banks.
Banks might foster partnerships and create
new ecosystems for innovation – ranging
from technology start-ups to academic
institutions, or even with non-bank players.
Senior sponsorship. Because of these

challenges, the entire innovation effort
will need very senior sponsorship. When
people are asked to do things differently,
they need to believe they will be rewarded,
not penalised, for doing so. People look to
the actions of senior leadership to set their
priorities. The tone needs to come from
the top.

Only 10% of CEOs see their
companies as innovation leaders
The importance of Innovation has become a major C-level

concern. Ninety-seven percent of CEOs
Respondents do not only see innovation as
a product-level concern. Rather, they see
igure 15: Innovation is a critical
F
C-level topic
innovation. consider innovation as a key priority for top- innovation throughout the entire business
and bottom-line growth, but only 10% of model as critical to drive performance –
PwC’s Global CEOs view their organisations as innovation innovation in technology, the customer 60% +62.2%
The most innovative
leaders. Further, 64% of CEOs agree experience, in systems and processes, in
Innovation Survey: that neither innovation nor operational services, in channels to market and in
companies are
predicting growth of
Breakthrough effectiveness are dominant – and are looking supply chains. 50% 62.2% over the next
five years
to succeed at both.
Innovation and They recognise that innovation requires a
There are good reasons for this. Our results new management discipline; that innovation
Growth highlights suggest that the most innovative companies activities need to be coordinated and
40%
+35.4%
the importance
Against the global
are expecting to grow much more rapidly managed for maximum efficiency, and not average of 35.4%
than the market – they are predicting 62% left to evolve by chance within individual
of innovation in growth over the next 5 years vs. a market business units.
30%
driving growth and average of 35%, and only 21% from the least
innovative companies. This is a big deal – for They also highlight some of the challenges +20.7%
20% The least innovative
the challenges of a $10bn company this creates a $2.7bn gap with driving successful innovation. The companies in our
in 5 years. challenge of taking new innovative ideas to survey are expecting
achieving success. market in a rapid and scalable way, of finding
10%
growth of 20.7%
over the same period
the best talent to make innovation happen,
of establishing a culture within which
innovation can thrive and of finding the right
external partners to help make it happen. 2014 2018
P
wC’s Global Innovation Survey: Breakthrough
Innovation and Growth
97% of CEOs see innovation

as a key priority for growth 64% of CEOs see neither innovation
nor operational effectiveness as
being dominant – they are looking
PwC’s Global Innovation Survey:
Breakthrough Innovation and Growth to succeed at both!
Proactively
managing risk,
regulations and Executives in all regions, unsurprisingly Given the enormity, complexity, and inherent
6
• Multinational universal and commercial
capital given the last five years, consider this the
biggest priority, with 64% stating this as very
linkages and interdependencies of regulation
and supervisory expectations in each of
banks will need to ensure a balance of
deposit-taking and lending in each country
important. Again, however, very few (only these respective areas, there are tremendous in which they operate, typically requiring
The post-crisis flood of regulations
22%) consider themselves very prepared. The challenges as well as opportunities to address new deposit-raising strategies. Moreover,
signals a major mindset change biggest obstacles to addressing these issues this in a manner that drives for long-term these banks will have to rely on local
for regulators. In the past, are the level of financial investments required efficiencies and sustainability. sourcing of capital rather than relying on
regulation was just one of many and technology constraints. their foreign parents.
Banks that are taking a proactive approach to
considerations. Capital was Enhanced capital and risk addressing these challenges in a systematic • Requirements for all forms of non-common
plentiful and not a significant management and disciplined manner will see tremendous equity (‘going concern’) capital to now
business constraint. Conduct Global regulation of capital, liquidity and benefit driving both operational efficiencies have equity conversion triggers in order to
related stress-test requirements, as well as as well as bottom-dollar benefit. be counted as capital will further increase
issues were thought to be few the cost of capital for banks. Additionally,
enhanced prudential standards, will continue
and far between. Today, not to evolve and eventually force globally active
Establishing a common thread of consistency the requirement of bail-in debt, a form
only are the rules much more to support a sound, robust and integrated of (‘gone concern’) capital, which is also
and/or systematically important banks to
enterprise risk framework will be key to required to convert to common equity
complex, but regulators are meet even higher stringent and binding
meeting regulatory expectations from
standards. at resolution, further underscores the
more suspicious, and less flexible both micro- as well as macro-prudential unwillingness of regulators to ever having
in their demands to improve These requirements are making a compelling perspectives. to use taxpayer money to bail out failed
compliance, reporting, and the case to seek alignment of risk appetite,
These new capital requirements and
banks in the future.
underlying business processes and capital planning and adequacy assessment,
restrictions will impact bank structures and • These capital requirements will ultimately
recovery and resolution planning, liquidity
data. Leading banks are taking a risk management, stress testing and overall
business models in the following ways: lead to an environment of ‘ring-fencing’,
different and more comprehensive enterprise risk management activities. • Banks that manage their funding most
where the ability for multinational banks
to move or repatriate capital freely
approach to managing their effectively, leveraging securitisation
Moreover, this should ultimately lead to between different jurisdictions will be
regulatory obligations. This structures such as covered bonds where
capital and liquidity optimisation, which restricted.
possible, will have a competitive advantage
approach is pragmatic, proactive would become a competitive advantage for
over those whose strategies are primarily
and increasingly integrated into banks competing in a highly capital-burdened
driven by their level of deposits.
environment.
‘business as usual’.

• In their quest to chase yields in order ensure the proper payment of taxes, Additionally, banks have built a labyrinth of
Proactively to justify these incremental capital
requirements, banks may seek riskier
compliance with KYC/AML laws,
sanctions, FATCA, etc.
compliance processes as regulations have
changed – a new regulation, a new process
managing risk, assets and strategies, especially in
• Increased regulatory requirements such
bolted on. This creates high cost and poor
environments where banks lack pricing customer experience.
regulations and power to pass the capital costs on to the
as stress testing and Basel III drive greater
operational and reputational risk. Banks Banks should embrace regulation, and embed
capital consumer, given they may be more of
will need to be able to report detailed it in their core business processes – it is not
price-takers than market-makers.
information on portfolio metrics and just the responsibility of the compliance
• We expect to see an increased premium trends, and be able to rapidly model group. They should bring analytical rigour,
on wealth management and other lower alternative scenarios. and need to tackle the existing high-cost
capital-intensive businesses. complexity.
• Risk management will expand and
• Capital management will need to be interact more closely with every area of The challenge is that so many of these
considered as part of individual business, the bank including marketing, product initiatives are being led by different groups
customer and pricing decisions. Capital- development, business analytics and across the businesses, and regulatory and
intensive products will need to be compensation. This requires a more risk functions, and so they lack effective
priced higher. This will add complexity robust end-to-end view of the business, coordination, leading to inconsistent
to credit risk and pricing functions, and an expanded skill set within the risk understanding of regulatory implications,
which are already undergoing change organisation. lack of clarity around firm-wide decision-
to ensure customer-centric pricing and making, and inefficiency and duplicative
underwriting. We discuss this further in Proactive regulatory processes around the bank.
our paper ‘Look Before You Leap’. management
Underpinning truly proactive regulatory
Beyond maintaining a strong, independent As we discuss above in ‘Rise of state-directed management is a strong global regulatory
risk management function that is focused capitalism’ and as we know from recent lead and team, overseeing and coordinating
on the core financial risks that banks face, events (e.g. admissions of wrongdoing and bank-wide activity. Done right, this provides
sufficient oversight of operational and record fines related to LIBOR, US mortgages, clear accountability, consistent messaging,
reputational risk will be critical. and others), governments and regulators integration of regulatory strategy and change
are increasing levels of scrutiny and are management, proactive communication
• Cyber security is now top of mind as new increasingly penalty-minded. internally and externally, and ensures
technologies like mobile expose customer
Regulators do not want banks just to be regulatory considerations are consistently
data to greater risks.
correcting mistakes, nor to be ticking considered in other corporate initiatives
• Vendor risk will need to be managed boxes. Rather, they want banks to embrace and projects. This core team can ensure
more closely. Banks have hundreds of regulatory intent, and create sound, secure, connectivity and oversight of business-level
partners, and are seen as responsible and unbiased businesses, where regulatory initiatives, corporate initiatives, as well as
accountable, end-to-end. compliance and sound conduct is embedded acting as the core office of regulatory affairs
in the processes and values of everyday – proactively leading the bank’s interactions
• Banks have become both information
operations. with all regulatory bodies and stakeholders.
hubs and potential targets as governments
Conclusion
Much is changing in the banking landscape – with regulation,

technology, demographics, changing customer expectations, greater
competition and issues with banks’ own legacy business and operating
models. The challenges are clear, even if the ultimate endgame is not.
Banks need to get ahead of these challenges and retool to win in 2020. They need to make
hard choices about which customers to serve, how to win and where not to play. They need
to rebuild their organisations around the customer, simplify and structurally reduce cost.
They need to learn to be agile, innovative and adaptable in order to execute effectively –
and deal with uncertainty as the future unfolds. They need to do things differently.
Each bank’s unique response will depend upon the bank’s current position, aspirations for
the future, desired customer focus, organisational capabilities, brand promise, regulatory
situation and capital constraints. Banks should consider the posture they wish to adopt. Do
they want to shape this future, rapidly follow, or manage defensively, putting off change?
Staying the same is not an option.
Every bank needs to develop a strategy to tackle these challenges. One that transcends the
status quo and considers all possibilities. One that can adapt to an uncertain future. And
one that takes an end-to-end view – integrates the changes in markets, customers, risk,
regulation, operations, technology – and the challenges of implementing real-world large-
scale change.
We hope this perspective has been provocative and provides insight as you consider both
your own strategy to thrive in 2020 and the tactical actions you need to take today.

Contacts
If you would like to discuss any of the issues raised in this report in more Justo Alcocer Jeremy Fox-Geen
detail, please contact one of the following names or your usual PwC contact. Partner Managing Director
PwC (Spain) PwC (US)
+34 915 684 044 +1 646 471 6398
justo.alcocer@es.pwc.com jeremy.fox-geen@us.pwc.com
Steve Davies John Garvey

Partner Principal
PwC (UK) PwC (US)
+44 (0) 131 260 4129 +1 646 471 2422
steve.t.davies@uk.pwc.com john.garvey@us.pwc.com
Antony Eldridge Graham Hayward

Partner Partner
PwC (Singapore) PwC (Bahrain)
+65 6236 7348 +973 17 118888
antony.m.eldridge@sg.pwc.com graham.a.hayward@bh.pwc.com
Louise Fletcher David Hoffman

Partner Partner
PwC (UK) PwC (US)
+44 (0) 20 7804 1594 +1 646 471 1425
louise.fletcher@uk.pwc.com j.david.hoffman@us.pwc.com

Werner Horn Dr. Holger J. Kern John Shipman Acknowledgements
Partner Partner Partner
PwC (South Africa) PwC (Germany) PwC (Australia) Retail Banking 2020 was a
+27 11 797 4876 +49 89 5790 5939 +61 2 8266 0198 global effort. We would like to
werner.a.horn@za.pwc.com holger.kern@de.pwc.com john.shipman@au.pwc.com thank the following people for
Manoj Kashyap Dean Nicolacakis Robert P. Sullivan their contributions: David Schiff,
Partner Principal Partner Nathan Perry, Cathy Stahlmann,
PwC (India) PwC (US) PwC (US) Annabel Dennison, Eileen Perrin,
+91 22 6669 1401 +1 415 498 7075 +1 646 471 8388
manoj.k.kashyap@us.pwc.com dean.nicolacakis@us.pwc.com robert.p.sullivan@us.pwc.com
Stephen Baird, Nathan Fisher,
Alison Blair, Alejandro Johnson,
Anthony Klick James Quinnild Alvaro Taiar Brandon Von Feldt
PwC (Canada) PwC (Hong Kong) PwC (Brazil)
+1 416 815 5257 +852 2289 3422 +55 11 3674 3833
anthony.m.klick@ca.pwc.com james.m.quinnild@hk.pwc.com alvaro.taiar@br.pwc.com
Miles Kennedy Peter Seethaler Stephen Whitehouse

PwC (UK) PwC (Germany) PwC (UK)
+44 (0) 20 7212 4440 +49 69 9585-3436 +44 (0) 7718 339 554
miles.x.kennedy@uk.pwc.com peter.seethaler@de.pwc.com stephen.whitehouse@uk.pwc.com
PwC helps organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with more than 180,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find
out more by visiting us at www.pwc.com.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or
warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does do not accept or assume any liability, responsibility or duty of care for any consequences of you
or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
For more information on the Global Retail Banking 2020 Marketing programme, contact Lara De Vido at lara.de.vido@us.pwc.com
www.pwc.com/banking
© 2014 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

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Retail Banking 2020

19 Six priorities for 2020

4 PwC Retail Banking 2020

6 PwC Retail Banking 2020

PwC Retail Banking 2020 7

* For further information on Project Blue, please visit www.pwc.com/projectblue

8 PwC Retail Banking 2020

Rise and interconnectivity • Economic strength • Capital balances

Source: PwC Project Blue

PwC Retail Banking 2020 9

imperative high-fixed cost, branches will need to • 

PwC Retail Banking 2020 11

12 PwC Retail Banking 2020

PwC Retail Banking 2020 13

14 PwC Retail Banking 2020

71% of Banking and Capital Markets

16 PwC Retail Banking 2020

18 PwC Retail Banking 2020

PwC Retail Banking 2020 19

5 Enabling innovation, and the Below, we discuss each priority in turn.

20 PwC Retail Banking 2020

Part 1: Fiercest Strategy

Enhancing customer data collection 54%

Evaluating bank performance

Using social media to monitor

Creating a flexible and agile product 38%

Creating and filling an executive-level 15%

0% 10% 20% 30% 40% 50% 60%

Source: PwC Banking 2020 Survey

PwC Retail Banking 2020 23

delivering it. Here’s have frustrated customers. Mitigate this • 

24 PwC Retail Banking 2020

26 PwC Retail Banking 2020

cannot survive in ‘managing branches’ and instead are • 

future. Here’s how. • 

PwC Retail Banking 2020 27

The most successful banks are learning from

Current State Current State

Need 1 Need 2 Need 3 Need 1 Need 2 Need 3

Channels Channels Channels Integrated Compliance

Market, Credit, Reputational and Operations Risk

Source: PwC Banking 2020 Survey

30 PwC Retail Banking 2020

PwC Retail Banking 2020 31

30% 20% 10% 0% 10% 20% 30% 40% 50% 60%

n Most threatened n Benefit most

To master these capabilites, banks will need

Building these capabilities will create

PwC Retail Banking 2020 33

engagement. PwC’s Data Aggregation Analysis & Synthesis Actionable Insights

deliver actionable Once upon a time

Monitoring & Alerts

Customer Sentiment PwC SME Insights

34 PwC Retail Banking 2020

Executives believe that the large global and

PwC Retail Banking 2020 35

To succeed as innovators, banks will need to Core Platforms 44%

organise and manage themselves differently.

Talent. Banks need a new type of talent

oversight and cultivation, not check-the-box

embedding them one by one in the business

Partnerships. Major innovations are

Senior sponsorship. Because of these

PwC Retail Banking 2020 37

Rise and interconnectivity • Economic strength • Capital balances

imperative high-fixed cost, branches will need to •

delivering it. Here’s have frustrated customers. Mitigate this •

cannot survive in ‘managing branches’ and instead are •

future. Here’s how. •