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The banking sector has been, and continues to move, through a considerable transformation - from addressing the issues arising from the 2008 financial crisis and the COVID-19 pandemic, to shifting to a far more digital operating and distribution model. Our industry is evolving at pace with new challenges to address and significant opportunities to pursue. 

We are living in an ever more digital economy where operations work seamlessly between the physical and virtual and where online services, digital currencies and contactless payments are becoming the norm.

Technology is also underpinning some fundamental changes in the way we work with automation of processes increasing; recruitment, learning and development needs changing rapidly, and far greater adoption of remote working all contributing to a new workplace dynamic. 

Equally, the evolving environment we are working and living in demands more resilient processes, teams and organisations. New risk models and strategies need to be adopted to ensure new challenges across cyber, third-party risk, financial resilience and others are managed successfully. Not to forget the need to keep pace with the evolvement of regulatory requirements and the environmental, social and governance (ESG) agenda.

We have identified six key trends against which bank’s performance will be critically important as they position themselves for the future.

1 New distribution channels
2 Digital economy
3 Cost and operations reimagined
4 New reality of work
5 Risk playbook
6 Purpose and values

1. New distribution channels

New distribution channels reconfiguring the landscape

As society becomes more cashless and digitisation accelerates, banks may need to evaluate their branch networks and ask themselves fundamental questions about what their physical outlets are actually for. Are they sales points or service centres? Core to the brand or nice to haves? In a much more digital model, products and services may need to be reframed, allowing greater degrees of self-service, enhanced product functionality and fulfilment, and a new approach to selling and advertising to attract customers.

2. Digital economy

Harnessing the shift to a digital economy

As we accelerate to a global digitally connected economy, banks must operate across virtual and physical domains seamlessly. They will need to harness the potential of new electronic payment mechanisms, digital currencies and contactless payments as use of cash rapidly declines. But as much as this creates opportunity, it also poses threats – with a generation of new technology based service providers coming into the market, banks may need to devise strategies to prevent themselves from becoming disintermediated. They must find ways to remain relevant to their customers and create new use cases for payment revenue opportunities.

3. Cost and operations reimagined

Cost priorities reimagined, new operating models emerging

In an exceptionally low interest rate environment, operating expense will likely become an ever greater area of focus. Banks will need to find a way of decreasing costs while also building capability to support growth – ‘smart cutting’. A focus will fall on leveraging technology to achieve both of these aims, through greater use of automation and AI. Simultaneously, banks can more aggressively evaluate their operations by moving to greater use of shared service utilities owned by consortiums or third parties, as well as managed services and outsourcing. Everything could be up for debate as banks look for the operating model of the future.

4. New reality of work

New ways of working becoming the norm

COVID-19 has seen a cross-sector working from home ‘revolution’ – including in banking. Going forward, banks should identify the optimal mix for the operating model and ensure they have sufficient infrastructure to facilitate long term mass flexible working. In turn, this means that the purpose and use of corporate real estate will need to be re-evaluated. At the same time, the labour force is likely to become ever more automated, with resiliency paramount. Organisational culture and leadership, on-boarding, training, upskilling, and the attraction of new talent – together with tax implications due to reduced Global Mobility and higher levels of remote working – all need to be factored in to a complex set of dynamics.

5. Risk playbook

Writing a whole new risk management playbook

If there is one thing that COVID-19 has taught us, it is that almost anything can happen. Banks will need to fundamentally re-evaluate their resiliency across the complete spectrum of risk – operational, liquidity, capital, market, and credit risk – to model for the next unforeseen event. As we enter a likely recessionary period, regulatory requirements could rise. How much capital should banks hold over and above regulatory mandates? Are their customer portfolios sufficiently diversified? Meanwhile, as banks increase the use of AI and digital technologies, are they cyber secure? New risk models and strategies need to be developed as well as processes and protocols to accompany them.

6. Purpose and values

Values and purpose front and center

As governments, businesses and citizens start to look towards the new reality of life with COVID-19, considerations related to environmental, social and governance (ESG) issues are central to the agenda. The days when financial institutions were almost exclusively evaluated by their growth, profits and go-forward prospects are receding. Today, what customers, investors and stakeholders increasingly want to know about – alongside financial strength – is the company’s culture, values and purpose. Societal responsibility, ethics and support for progressive climate related products and services are vital. Much progress was already being made pre COVID-19 – banks need to retain these gains and build on them for the future.  At the same time, as banks become more digitised and the world moves towards a cashless society, banks may need to ensure that no one gets left behind.

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KPMG's Banking and Capital Markets practice is helping the industry navigate these challenges, and capitalise on the opportunities today's evolving landscape is creating. To discuss these trends and their impact on your business, please contact us.