New heroes- Retail banks!

Grappling with the aftermath of the 2008 financial crisis the retail-banking sector has weathered many storms in recent years along with the impact of digitization and competition from digital challengers. COVID-19 being the disruptor-in-chief, banks now have to be bold and innovative to transform the material threat it will face and turn it into an opportunity for increased market share. Living through the pandemic together, we can say that the coming year will be bring a major hold on the economy and all of our lives too, in a broader sense. But the financial crisis of 2008 recession’s catalyst for crisis and timescales of impact are different from todays, there are still lessons to be learned.

After taking measures post-2008, including increased regulations and tough decisions, causing the sector to scale down, streamline and increase capital buffers, the banks are much stronger now. Banks cannot rely only on the efficiencies, however, and will need to be proactive to minimize collateral damage from the current crisis. To help manage their responses to intense systemic shocks, banks are tested every year and prepared for the contractions of only about 5 to 7 percent. The United Kingdom’s economy contract by 25 percent in June, even though it was expected a bounce back is probable with an intense recession. 

“New decade, new crisis: lessons learned from the Global Financial Crisis and why this time it’s different” Kearney’s recent report suggested after being tested. As the Governments introduced far tighter regulatory regimes for the financial sector, ensuring capital adequacy and proscribing excessive risk-taking. The cost savings of around £70 per customer per annum will need to be achieved, compared to £20 per customer after the 2008 crisis. And these levels of efficiencies will not be met without radical reform of the business model.

The models pre crisis will have to be adapted after post crisis realities too. Many outdates elements have been exposed by this COVID-19 and with some considerable competition from these challengers, the customers might not be inclined towards the traditional methods and reject them and favor the digital alternatives. Already there can be seen migration to digital and cashless accelerate with the pandemic and the world of traditional banking rapidly evolve its practices to cater to new customer preference. Digitalizing is not just critical for customer appeal but it is very essential to realize the operational efficiencies needed to remain financially competitive. Operations departments have to become even more automated, with new AI (artificial intelligence) and robotics systems speeding up transactions which will facilitate every aspect of the retail banking, from improving the customer experience by predictive sales modelling and gauging clients’ price sensitivity to improving risk management to minimize financial exposure in the future. Kearney estimates that across Europe, banks will need to reduce their costs by €35 billion to maintain their current 2019 cost-to-income ratio, so taking measures to cut costs and adopting new operating models to streamline processes will be essential for survival in the post-pandemic marketplace.

The banks should now take cues from fintechs, the main lesson being to be bold and experiment with new tools. Even though compliance regulations imposes additional costs, there are possibilities to innovate. This pandemic aided the traditional banks to take a rapid shift towards digitization so that the customer experience can now be Omni channel with banks always available to customers without the need for them to drop into a branch and with payments and transactions able to be processed online. It offered an opportunity to become the heroes if and when the sector showed resilience, adaptability and vision to act as the primary catalyst for the economic revival and the Retail banks can became the Heroes if they are not suborn and hear their customers more than ever now.