Transforming banking for the next generation

The next decade in banking will see both evolution and revolution. Banks must reinvent themselves, not just to respond to the pressures of today, but to be flexible enough to adapt to the world of tomorrow. The most successful banks will be those that have transformed their business models. Banks will increasingly focus on profitability rather than revenues. As a result, they will be defined by narrower scope and simpler structures, but greater reach. They will serve fewer customer segments, but some will operate across more markets. They will deconstruct products, stripping them back to their component parts so that customers can rebuild them tailor-made. At the same time, they will introduce new products that are more aligned to emerging client needs. Some will move to outsource back-office functions that no longer provide a competitive advantage, and some will operate key banking services for new competitors. Transformation is necessary because banks face an array of stakeholder pressures. They must find a way to deliver improved performance for investors who have tired of high volatility but low returns on equity. In doing so, banks will have to grapple with a low-growth environment across much of the developed world and slowing growth in the emerging world. To fund their transformation, they will need to become simpler and more efficient. As banks position themselves to deal with a “new mediocre” era of low growth, they will have to continue to adapt to a post-financial crisis environment, where an often divergent global regulatory reform agenda shows no signs of abating and customer trust must be regained. With governments and regulators becoming increasingly assertive, and customers ever more demanding, this will not be easy. And it will be made harder in a world where the best and brightest talent is looking for a career beyond financial services.