Subscribed to {PRACTICE_NAME} email alerts. Financial advice has never been more important. 8. COVID-19 has accelerated longstanding consumer and business shifts away from the branch and toward digital channels. To better understand Chinese banking customers, McKinsey … Concerted effort is required to optimize investment within digital channels and across the acquisition funnel to align with customers’ shifting preferences and needs. Use minimal essential To position for success in this new environment, speed is of the essence. According to a McKinsey survey, trust in banks has declined compared to pre-COVID-19 levels in several markets. The expected increase in digital banking adoption corresponds to a leapfrog of three years for the US and one to two years for countries like the UK and Spain when compared to historical data from the McKinsey Consumer Financial Pulse survey, Eurostat, and the FDIC National Survey. The ‘Big Three’ management consultancy firm flagged up three retail use cases that could eventually be deployed at scale, and which offer most in terms of blockchain’s three key strengths: data handling, disintermediation and trust. Retail-banking revenues in this report include banking receipts from small- and medium-size enterprises but exclude private banking. The authors wish to thank Ashwin Adarkar, Eva Beekman, Nuno Ferreira, Vito Giudici, Paul Jenkins, Debasish Patnaik, Marcus Sieberer, David Tan, and Marco Vettori for their contributions to this article. Retail banks have been slower to embrace blockchain technology and face greater challenges in reaping its potential benefits than their more … Branches will increasingly feature self-service (including intelligent ATMs Done wrong, customer experience initiatives can lead to cynicism—huge amounts invested, generally happier customers, but limited financial returns. Learn about 9 PwC Retail Banking 2020 Overview. “Until a few year ago, U.S. regional banks enjoyed a comfortable incumbency in their regional markets,” McKinsey noted in a report. Reshaping retail banking for the next normal. retail banking to gain access to a stable and low-cost source of capital. Ashwin Adarkar Senior Partner and Leader of Global Retail Banking Practice at McKinsey & Company Greater Los Angeles Area 500+ connections Results as of 27 May 2020. None of these elements are entirely new; instead they reflect accelerations of existing trends, punctuated with some additional factors prompted by unexpected shifts in the operating environment, especially for actions related to credit risk and opportunities to rejuvenate trust-based relationships. 2 We see four primary areas of focus. 9 “What do consumers really want?” McKinsey Digital Banking in Asia, (March 2015) 10 Digital Europe: Pushing the Frontier, Capturing the Benefits, McKinsey (2016) Branch managers will assume the role of sales-driving leaders/coaches across distributed teams and branches. Given a projected large-scale drop in revenues after risk, banks will be challenged to strengthen customer relationships. More than ever, banks must strike a balance between being there for customers in financial distress and prudently managing credit losses. Retail banks in emerging markets derive more revenue from younger customers; the opposite is true in developed markets. Retail banks, like most companies, face an urgent imperative to reimagine themselves, with COVID-19 accelerating consumer behavior shifts and causing significant earnings challenges given the tough macroeconomic context and extensive risk of financial distress for both consumers and businesses. In order to build speed, flexibility, and resilience into their operating model, banks can take action across three main dimensions: Consider pursuing flatter organizations, leveraging this unique opportunity to measure value-added productivity across the workforce and establish organizational baselines centered on roles that truly matter. Customer preferences spur retail banking channel evolution. McKinsey Global Institute (MGI) analyses the near future of the European retail banking sector after COVID-19. North America. The financial services industry is going through dramatic changes as a consequence of changing customer behavior, increasing expectations, channel proliferation, disruption, innovative use and adoption of new technologies and the digitization of business and society in general. Retail banking leaders can play a prominent role in shepherding the world toward economic recovery in a socially responsible manner, while preserving the health of their organizations. Given declines in global fintech funding in excess of 50 percent since December 2019, banks should remain alert for acquisition candidates capable of generating new revenue streams at reasonable valuations. As discussed in our May article, Range of 30-75 percent. Efma and McKinsey, known for their annual World Retail Banking reports, have seen improvements in many areas since. 4. As the crisis evolves, banks can also develop analytics allowing them to monitor customers’ recovery paths in the absence of traditional early-warning indicators, leveraging short-term early-warning systems using real-time transaction data. Moreover, as risk/compliance teams audited the actions immediately after, they did not identify a single error. Early evidence suggests that companies that were already embarked on an operating model transformation for speed responded more swiftly to COVID-19 and that there is a strong correlation between the level of agile maturity and rapid response in launching COVID-19-relevant products and services. Results as of 27 May 2020. Citigroup has named David Chubak as its head of US retail banking. — Pradip Patiath, McKinsey McKinsey analysts and researchers have been tracking a tectonic shift in U.S. retail banking for some time. our use of cookies, and Once roles have been rationalized there is a further opportunity to rethink the location of work, benefiting from remote options (Exhibit 4). Successful banks typically apply advanced analytics to identify niches of prudent growth, accurately predicting the best loan offer recipients, whose credit lines to increase, and who needs asset allocation assistance, thereby building stronger relationships while simultaneously helping customers optimize their finances. Digital upends old models. 6. The report concludes that by 2020, the global payments industry will likely generate $400 billion more in annual revenue than in 2016. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. More people are demanding simple, trustworthy products and services from financial institutions—or other companies offering similar services—that put them first. n=1,645, including North American and European companies that were publicly traded between 2006 and 2011, and that had revenue >$1 billion in both 2007 and 2009. Retail banks must keep pace with their customers. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Over the past 10 years, we’ve seen the industry take banking into the digital landscape, develop use cases for an explosion of new data, ensure compliance with PSD2 and GDPR, innovate payments and take on technological forces such as AI. Banks can update segmentation models for delinquency, using data to inform proactive outreach to financially vulnerable customers, and tailoring risk-mitigation actions and client engagement. Marie-Paule Laurent, Olivier Plantefève, Maribel Tejada, and Frédéric van Weyenbergh, “, Ademar Bandeira, Bruno Batista, Adelmo Felipe, Matt Higginson, Frédéric Jacques, Frederico Sant’Anna, and Alexandre Sawaya, “, No going back: New imperatives for European banking. Bank will need to institutionalize these working models, maintaining the accelerated pace once the near-term crisis has abated. Roles will expand and shift, necessitating the re-skilling of talent. Please click "Accept" to help us improve its usefulness with additional cookies. Given the unprecedented nature of the current crisis, banks’ existing credit risk models and approaches are too retrospective and do not sufficiently capture sector implications and government initiatives to provide meaningful guidance. With customer shopping behavior increasingly shifting online, helping SMEs scale their online presence, including facilitating digital point-of-sale loans or leasing, could also prove beneficial. Please try again later. Strategy & Corporate Finance. Sorry, we couldn't find any results. The distribution shifts detailed above can be leveraged to empower a more customized, analytics-driven, multichannel approach to engagement with both existing and new customers. Source: iStock/ultramarine5. Klaus Dallerup is a partner in the Copenhagen office. 9. In the aftermath of domestic economic crises, both countries encouraged multinational companies to participate in retail banking, hoping foreign funds would build stability and increase capitalization. Retail banking: evolutions, disruptions and solutions in a hyper-connected digital age. operations long into the future. perhaps due to limitations of their digital capabilities. Page iv • The picture is different in Asia and developing markets like Mexico, where many banks have developed differ-entiated modes of targeting and serving the affluent, combining primary banking services with wealth management. Banks that reimagine how they engage their customers and empower their employees will emerge as leaders. McKinsey Financial Decision Maker Pulse Survey run in mid May 2020; countries surveyed include UK, France, Italy, Spain, Germany, Sweden (1,000 representative consumers each). 13. This creates a rare, mutually beneficial opportunity for banks to rejuvenate their trust-based relationship with society. 3. Finally, retail banks can reorient toward digital by adjusting resource and investment allocations, making pragmatic technology decisions and rapidly upskilling the workforce to become more digital and data-fluent. ... Coleads McKinsey’s global banking and securities practice and leads high-impact digital transformations, helping companies improve performance, drive innovation, and create value Link to node. Given the analytical nature of digital marketing, required skill sets differ vastly from “old-fashioned” marketing. Here, the affl uent tend to give higher loyalty scores. Examples could include lending products for customers with non-standard income profiles or impaired credit histories due to the crisis. 13 Scrutiny of retail banking sales practices is at a high pitch—banking leaders should also see this as an opportunity to reset and strengthen relationships with their customers. The connectivity of the Customer of the Future is a major If banks are successful in converting these stated customer preferences into actual behavior, digital is expected to become the default channel for most customers and the sole sales and service channel for many. As an example, contacting digital-first customers through their preferred channel has been shown to boost installment payment upticks by more than 10 percent, according to a 2018 McKinsey survey. McKinsey Financial Decision Maker Pulse Survey run in mid May 2020; countries surveyed include UK, France, Italy, Spain, Germany, Sweden and USA (1,000 representative consumers each). McKinsey uses cookies to improve site functionality, provide you with a better browsing experience, and to … Range of 30-75 percent. In recent weeks banks have proven themselves able to move faster than imagined. Meanwhile, the retail banking landscape has faced several challenges, including interest rate liberalization, major regulatory changes, and the rise of digital finance. The future of retail banking starts with the customer. The more that customers use digital-banking channels, the more they actually use branches and call centers. But even those scale economies had limits above a certain size. A granular, country-by-country analysis of revenue per retail banking customer, for example, reveals significant differences in product opportunities (Exhibit 2). McKinsey underscores retail banking sector's hesitation for blockchain adoption in new report Mon, 10 Jun 2019, 07:29 am UTC Consultancy firm McKinsey & Company said that retail banks are slow to adopt blockchain technology, citing regulations and conservative consumers as obstacles. We use cookies essential for this site to function well. cookies, Safeguarding our lives and our livelihoods: The imperative of our time, McKinsey_Website_Accessibility@mckinsey.com, Banking models after COVID-19: Taking model-risk management to the next level, Addressing the needs of customers in delinquency impacted by the coronavirus, Beyond coronavirus: The path to the next normal. collaboration with select social media and trusted analytics partners 14 McKinsey Financial Decision Maker Pulse Survey run in mid May 2020; countries surveyed include UK, France, Italy, Spain, Germany, Sweden, China and USA (1,000 representative consumers each). Although other factors certainly enter the equation, retail banks should consider these emergent needs when designing new products and services. Digital sales and servicing will accelerate markedly and the remote advisory channel should finally come of age, potentially handling 35 percent of complex needs remotely. The Future of Retail Banking 2020’s survey-based report on the future of the retail banking market has arrived. Should these emerging preferences become banking’s post COVID-19 “next normal,” retail banking distribution will experience up to three years of digital preference acceleration in 2020. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. tab. 4 Distribution 2020 certain product or, at the other extreme, switch banks. This baseline can aid the transition to smaller, cross-functional teams comprised of what we characterize as “decision makers” and “doers”—a model that has proven to be effective for banks. Learn more about cookies, Opens in new Globally, only half of banks can block or freeze credit cards digitally, and less than a third permit the initiation of financial transaction disputes via digital channels, according to Finalta benchmarks. Charting retail banking revenues by generation. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. 1“Retail Banking Growth Solutions: Serving the Banking Customer of Tomorrow.” Deloitte Consulting LLP, Summer 2014. Interestingly, McKinsey research reveals the digital preferences of older Western European consumer cohorts (ages 51-64 and 65+) aligning for the first time with those of younger demographics for most banking services (Exhibit 1). Select topics and stay current with our latest insights, Reshaping retail banking for the next normal. 16. McKinsey uses cookies to improve site functionality, provide you with a better browsing experience, and to … The global banking industry is facing a long winter, and in the coming months and perhaps years, the COVID-19 pandemic’s impact will present banks with many challenges. Hopefully our four questions can serve as a foundation for this essential undertaking. and in-branch kiosks), with limited cash availability at counters given dramatic recent usage declines. Retail banks have recognised that customers are increasingly swayed by sophisticated apps. McKinsey Financial Decision Maker Pulse Survey run in mid May 2020; countries surveyed include UK, France, Italy, Spain, Germany, Sweden and USA (1,000 representative consumers each). ... Coleads McKinsey’s global banking and securities practice and leads high-impact digital transformations, helping companies improve performance, drive innovation, and create value Link to node. However, the Such moves could help fast-track the continuous innovation and data-driven customer engagement necessary for success or enable banks to move into adjacent areas as part of a broader ecosystem play. If you would like information about this content we will be happy to work with you. Here is where to start. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. African retail banking's next growth frontier: McKinsey & Company (Infographic) March 5, 2018 By Staff Writer 3 Africa’s banking market is the second … Are likely to wait for retail banks to rejuvenate their trust-based relationship with society McKinsey! 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