Retail banks must fight back or join forces, says report

10 March 2015

  • About half of retail banks say regulation and changing customer behaviour will be the factors having the biggest impact on their industry in the years to 2020
  • However, responding to regulatory change has dropped down retail banks’ agendas, which are now focused on implementing a digital strategy 
  • New entrants and competitors are also expected to have a significant impact

A new report by The Economist Intelligence Unit says that retail banks must respond to changing customer behaviour and demands in order to compete with new competitors—or join forces with these niche players. 

Future Factors: The three Rs of retail banking: Regulate; Revise; Re-envisage, sponsored by Temenos, finds that implementing digital strategies (46%) is now a bigger priority for bank management than responding to regulation (35%). This focus on digital no doubt stems from their view that the factors that will have a significant impact on the industry to 2020, beyond regulation, are changing customer demands (46%) and new entrants and competitors (35%). 

When asked who those new competitors will be, over one-third (36%) cited technology and ecommerce companies like Amazon and Apple and a fifth (21%) pointed to non-financial services firms like traditional retailers, rather than new banks (13%) or payment players like PayPal (12%). 

Retail banks are responding to the challenge with a range of customer-centric priorities such as implementing a digital strategy (46%), segmenting customers by product and service levels (40%) and adapting the size and role of the branch network (37%). To specifically improve the customer proposition, banks say they will improve pricing transparency (40%), improving monitoring and governance (39%) and create simpler products (35%). 

Monica Woodley, the editor of the report, said:
"The growing ubiquity of smartphones and the experience that consumers have with online giants like Amazon are quickly reshaping what is expected of retail banks. They must respond to these trends or be left behind. Fortunately, this year’s survey shows a growing realisation of this, with increased investment in digital strategies and other customer-centric improvements, as well as examples of where banks are working with new niche players to supply faster, cheaper services.”

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