Retail banking - not an easy business nowadays

When we are looking at the banking industry of today, we will remark that it is changing rapidly.

These changes are mostly dictated to the banks due to economical, political and technological factors they have to deal with. I am looking at retail banks in this article.

Retail banks are suffering from tightened regulations after the first crisis in 2008. The BASEL I,II,II regulatory frameworks for banks as an example are costly to implement for them. Focussing on European banks we have to constate that the European Central Bank (ECB) is conducting a low interest rate policy which is not helping them to earn more money.

On top of this is the negative interest rate for the deposits the banks have to place overnight which is an additional burden to shoulder.

As we can read in the press, some banks have to pay enormous fines due to court decisions which is representing another painful cut into their financial resources.

These institutes are “old” school”, they are based on the requirements of the past. A large and expensive brick-and-mortar branch network, legacy banking systems which are not compatible with today's digital banking infrastructure are not helping them to compete with the purely digital challenger banks.

The cost for a transformation of such a bank into a modern finance service provider can be discouraging for the top management. At the same time they know that they have to change or they will disappear.

Research institutes prove that millennials are the most important group of bank customers in our days and they are asking for ways to bank that are incompatible with the existing structure of the traditional banks. At the same time we can learn from other surveys that the role of branches is still an important one.

Bank customers still have a need to discuss face-to-face with product specialists when they have to take a decision which will influence their financial future such as signing for a mortgage for example.

Account opening is another business case which can be done online depending on the local KYC regulations but this important part of onboarding is still a strong point for branches. Your mobile phone won't instantly issue a bank card for example.

The customer of today is always on. In consequence their way to bank is done on various devices via the internet, phone banking etc. This is when we can differentiate between banks capable of offering a true omnichannel user experience to their customers and those who can’t due to their incompatible core banking structure based on a decades old silo topology.

Imagine they would even have to integrate a brand new channel like instant messenger (IM) banking. Probably they would follow their existing way of paradigm and just try to create another silo to fulfill this task. At the end of the day they surely would be able to offer IM banking but it would not been integrated seamlessly into the rest of their channels.

I used the above examples to show some of the requirements the regulators and the market have created nowadays and what impact this has to the diverse back office structures and technologies which are necessary for the daily operational business of a retail bank.

How are the traditional banks facing this? In a classical way: By axing thousands of jobs.

But this will reduce costs only - but not transfer the outdated core banking systems into modern ones they desperately need to connect to the future. Well the future is now..

Some banks are heavily investing into digital banking solutions or even buying fintech companies.

Imagine there would be a company offering a solution to bring them on track in a timely and affordably manner by offering services like:

• Cutting down operational cost

• Transforming the branch network and even offering a model to create new branches for the fractional amount of the cost for a traditional one

• Implementing omnichannel infrastructure without creating a new silo

• Integrating an interface to augment the legacy banking system to go digital without the need to replace it

• Creating new sources of revenue like marketplaces or partner channels

• Making use of the existing data banks have collected from their customers by using big data analysis

• Helping to get faster decisions for loan applications - making them even more secure by a better scoring model

• ...

Well I think such a company would have a more than bright future ;-)