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Envision a future in which customers perform all their financial services through digital wallets handled by non-banks like Apple, Google, and Uber. Or imagine another potential future in which a handful of large banks dominate the global market. Or another way, where traditional currencies lose relevance and transactions mainly take place through cryptocurrencies and digital tokens.
As we look ahead, it is clear that there is no clear future for retail banking at large. Instead, there are several possibilities for how the next decade could unfold. Today, retail banking is at a critical inflection point, and it is no exaggeration to say that ten years from now, the industry as we know it may become irrelevant.
To avoid that fate, leadership teams at incumbent retail banks need to understand current trends affecting the industry, extrapolate them forward, and predict what the industry might look like in the coming years. 2030, so they can prepare. We outlined our vision for the potential future in our new report: Five scenarios for the future of retail banking: Building strength in transformation. Each of the five scenarios is based on trends that have already started to take place. But we deliberately pushed those changes to their logical extremes for effect and to provide a useful thought exercise for leadership teams at retail banks. Our work emphasizes the need to look far, far ahead when planning for the future. And it helps provide more clarity on where and how banks can compete to stay relevant.
Confluence of challenges
Before mapping out the future, it is necessary to examine the present: retail banks around the world face a multitude of challenges, which together create more complexity and competition for established players. . For example, embedded finance is a strong new trend in which new market participants include Big Tech companies, fintech companies, and retailers that offer financial services such as lending. , payments and digital wallets, which typically operate with much lower regulatory scrutiny. Customer expectations are also changing as people now demand fast, seamless, personalized, and intuitive experiences, across both digital and in-person (all with a high degree of security). appropriate data secrecy). Meeting those new customer expectations requires new capabilities, in areas like Web 3.0, AI, machine learning, and distributed ledger technologies like blockchain — all outside the area of expertise. banking tradition. Meanwhile, the regulatory landscape is changing, as policymakers seek to balance the rapid pace of innovation, societal expectations and competitiveness with financial stability.
This complex and evolving web of trends is rewriting long-held ideas about who consumers trust and how they prefer to conduct their financial lives, while forcing banks to addresses the fundamental question of a financial institution – and what value it offers.
Five scenarios for the future of retail banking
To help retail banks adapt to current market changes — and prepare for the future — here are five scenarios we’ve developed for what the industry will look like over the next decade.
This complex and growing web of trends is rewriting long-held ideas about who consumers trust and how they want to conduct their financial lives.
Front Revolution. As embedded finance gains momentum, new players from outside the traditional banking industry capture customer relationships — the bank’s “front” — and incorporate financial services into the platform. their. Popular, cash-rich brands in technology, media and entertainment deploy improved user experiences and hyper-personalized services for more control of their customer relationships. Established banks — often faced with a higher regulatory burden and dealing with outdated technology — compete as the infrastructure backbone of the financial system, acting as regulators utility provider that provides licensed products and services.
Winner takes all. A wave of consolidation resulted in several major banks and fintech companies dominating the banking scene. These large, technology-enabled organizations create a competitive advantage through scale. Customers are drawn to the largest, most personalized, and most convenient platforms, and generally have no concerns about data privacy or choice. Only banks with the advantage of scale can invest in the steep (and potentially risky) technology needed to unify their architecture and create the end-to-end data linkage needed. essential for a truly differentiated customer experience.
Scattered landscape. Amid declining social trust, customers are increasingly suspicious of global organizations. Customers and assets moved from global players to more locally focused banks with smaller balance sheets, deposits and lending bases, and to specialized players in the microbiology sector. tissue. Winning players identify a clear target segment and develop a cohesive service offering to meet those customer needs.
Regulatory authorities resist. Regulators take an active approach to Big Tech and other non-traditional participants to ensure a secure and robust financial system. More specifically, regulators are expanding their technological capabilities and cyber risks as well as increasing surveillance and tracking, with the explicit goal of protecting customers. Government antitrust actions drive technology companies out of the industry and increase barriers to entry; Competition comes only from fully licensed financial services companies. This regulatory burden makes it harder for banks to innovate, leading to increased standardization of products and services, with fewer opportunities for companies to differentiate.
The rise of central bank digital currencies. The steady decline in cash usage continues alongside the rollout of central bank digital currencies (CBDCs). These digital currencies are widely accepted in the B2B, B2C and C2C segments. Incumbent banks lost basic bank accounts to central banks, rendering traditional banking business models unfeasible. In order to compete, several major banks and tech companies acquire top players from the crypto ecosystem to continue offering their existing services (albeit under strict regulatory scrutiny). regulatory side from central banks). Data, security, computing power, and algorithms will be the keys to success.
No one can accurately predict what the future of the industry will look like. However, thinking about the challenges posed by these scenarios will push retail banks of all sizes to rethink both the value they provide to customers and the role they play in society. new banking association and ecosystem. Regardless of which scenario prevails, organizations focused on driving technology-driven transformation, building a data-driven customer focus, and building trust at scale will win the competition.
- Eugénie Krijnsen is the leader in the financial markets sector for PwC Europe. Based in Amsterdam, she is a partner of PwC Netherlands.
- Roberto Hernandez advising clients in financial services on conversions for PwC. Based in Dallas, he is the principal of PwC US.
- Kurtis Babczenko is the global banking and capital market leader for PwC. Based in New York, he is the principal of PwC US.