A decade of change ahead
2020 marked a year of concern for retail bankers amidst the Covid-19 pandemic. Some industry observers put drastic outlooks of double-digit revenue losses forward – our own April 2020 scenario for Europe saw up to a 9% reduction. Although we have been pretty close: In the end we were all wrong – the worst expectations have not materialized. Less travelling cut into foreign exchange and card revenues. Increasing savings, deposits and investments, unbroken appetite for real estate, a move to cashless and notably government programs to curb insolvencies and unemployment have worked well – so far.
Perhaps most notably, last year put the spotlight on the fundamental transformation agenda in retail banking: a rethinking of everything related to sales and marketing (beyond branch models), the need to uplift product and pricing capabilities, a positioning in and for an ecosystem play, as well as the dawn of a new wave of industry consolidation on a pan-European level.
This year, we expect to see more profit improvements as more cost savings become visible in run rates, and from a rebound to growing economies – and hopefully without major fall-out effects on the business banking side. A year to stay alert, and accelerate on the transformation agenda.
…income squeeze – accelerated by Covid-19, yet less than expected
2020 also a turning point in account and deposit pricing
Flight to deposits
…deposit volume in 2020 driven by decreased consumer spending
Transforming of deposits into fee income as imperative
Continuous cost focus
…operating costs in 2020 – cost cutting programs already started pre-Covid-19
More radical measures to come
Cushion and caution
…loan loss provisions in 2020 and government interventions as cushion
Pending insolvencies and heightened unemployment
1) Based on the development of loans provisions of the 25 largest banks in Europe, not restricted to retail banking
Digital offerings and distribution models are required irrespective of branch network
Reversing funnel and role of outlets (new branch operating model)
Away from organizing coverage to building the profit cohorts of the future
Playing full spectrum from bundles across subscription services to advanced pricing tactics, and periodical reviewing
Embedding in key ecosystems (mobility, health, etc) beyond the current product partnering/ channel perspective in a world of open finance
Increasing pressure for industry consolidation on a pan-European level
The Strategy& Retail Banking Monitor is an analysis of the leading European, North American and Australian retail banks across key performance dimensions. The 2020 edition contains a sample of about 50 retail banks and banking groups across Europe - as well as North America and Australia as comparators - with a total of 690 million customers and estimated retail deposits and lending volumes of 18 trillion euros.