What are the biggest challenges for the established retail banks in 2017? In my mind these include: the unstoppable forces of societal changes and customer expectations, new consumer and business enabling technology, new entrants (both new brands and potentially well-known global companies), as well as the relentless march of regulation.
In these exciting times the winners will be those that can embrace change and successfully adapt. So knowing what to do and acquiring the agility to mobilise and implement meaningful and sustainable change will be key for many established banks this year.
As food for thought, to help you to consider how your business might reaffirm or attain sustainable competitive advantage, I have written a series of articles – to be published over the next few weeks - on a number of key approaches:
- Build on the strengths from within - Know yourself;
- Be stargazers and adopters - Learn from others;
- Develop sustainable success with help from your friends – Collaboration, and;
- Harness the revolution of people power - People Advocacy.
These insights will be particular to established retail banks but will have relevance to many other businesses as, ultimately, all companies need to keep up with the speed of change. I want to share my thoughts and insights in terms of the developments in banking that I have observed closely, in my role as strategic account director for banking and capital markets, supporting Equiniti’s bank clients over recent years. For me, this is a chance to discuss the opportunities that established retail banks could take to sustain competitive advantage. To set the scene, I reflect on some of the major events in recent times.
The retail banking industry has been facing profound change for some time now.
The banking crisis of 2007 and 2008 led to a fundament loss of trust with customers and it’s been a difficult journey since. Even in 2016 RBS was reporting negative net promoter scores.
Back in 2013 the Bank of England introduced a simplified two-step process for setting up new banks with lower capital. Since then, there have been some highly lauded new entrants with others lining up to join the crowd. 14 new banks have been approved since 2013 and another 20 are reportedly in talks with the Bank of England. New banks bring new digital platforms that enable a clean slate approach; unencumbered to focus on the customer experience and doing so on a lower cost base. These are all new competitors for the established banks.
In the last 10 years, there has been a meteoric rise in the domination of consumer tech giants or GAFA brands (Google, Apple, Facebook and Amazon). And many of these and other successful brands, such as Virgin, Tesco and Amazon, have leveraged their strength to launch into new spaces. Virgin and Tesco have moved into retail banking and Amazon offer credit via a third party.
Is a banking proposition so hard to imagine in the next decade for Amazon or Facebook? The latter has received a licence from the central bank in Ireland in 2016 to operate as a financial payments service and already offers a payments service in the US.
Whilst barriers to new entrants in banking have been significantly eroded, some cornerstone barriers such as regulation, compliance and risk remain. Two fast approaching and major industry regulatory changes are the Data Protection Regulation (GDPR) and MiFID II/ MiFIR, all coming into effect in 2018. And there is another significant threat on the near horizon. The revised Payment Services Directive (PSD2) looms and its introduction will open up competition for payment services allowing customers to use third party providers to manage their finances including allowing access to their bank accounts through APIs. Just for good measure this all takes place whilst the established banks are undergoing structural reform with the ring fencing requirements of the Bank of England…and, of course, whilst wrestling with the potential implications of Brexit.
A little further out in the technology space is the much heralded Blockchain technology that brings eye watering possibilities for further transformation of the payments industry and, of course, more challenges for established banks. Other technologies too, such as artificial intelligence (AI) and machine learning (ML) already offers new possibilities for beneficial intelligence with, for example, the modelling of current account real time transactions and targeted recommendations.
In this environment of change, there are many opportunities for established retail banks to flourish. So what do I see as the key assets of the established banks in this environment of flux?
Long standing and trusted relationships with millions of customers and true richness of customer data. In this enviable position, there are winning opportunities to be had including the potential for huge retail franchises.
In my next article I will discuss how, in the face of unstoppable forces, retail banks can compete in 2017 and beyond.