by Anne Thoraval
Despite the stress tests, western banks are facing many unknowns. How far will slow economic growth or any rises to interest rates cripple the banks’ loan books? How quickly could sovereign insolvency and bank illiquidity lead to a meltdown of confidence, a drying up of the interbank market and a second credit crunch? To what extent will regulation force restructuring in the banking industry? Which bank is the next to fail or to need government support? Will it be ‘too big to bail’?
Meanwhile, the picture in the developing and frontier markets could not look more different. Increasingly decoupled from the USA and Europe, Asia is moving toward a self-sustaining cycle with on-going trade surpluses raising domestic demand. Banks in China, India and beyond cleansed a lot of their bad debts in the 1990s and capital ratios are in better financial shape than in the West. Despite occasional nervousness about bad loans, and a marginal weakening in economic outlook, the still strong GDP expansion means that overall banks in developing countries are looking forward to a decade of profitable growth.
In both contexts, it is better to predict, assess probabilities and prepare than to sit back and become the victim of future changes or ill- informed decisions. Jones Lang LaSalle researchers have combined desk research, expert interviews and industry round tables across three continents to derive a plausible vision of where retail banking is headed internationally. Three major trends stand out:
- Power to the people: Banks can no longer rely on customer loyalty or inertia: their customer base is increasingly mobile, savvy regarding their finances, demanding, prudent and untrusting. Easy finance, good ethics and independence are the way to go. These dynamics will accelerate the move to online banking, place a greater emphasis on service in branches and catalyse a drive to target the wealthier segments with a differentiated offer.
- Technology—the game changer: Customers’ love of internet banking means that it will become the key touch point. As in retail, technology—and mobile banking specifically—is the game changer, particularly in the developing world. Its impacts will be felt in channel integration, smaller branch networks, non-bank led disintermediation and the configuration and targeting of international roll-out programs. Online platforms are opening the way for non-bank competition without legacy systems or branch networks to enter the market.
- Image is everything: Western banks will be working to claw back lost trust to ensure that, by decade’s end, their tarnished image will have turned positive once more. They will up the ante in innovation—for different target customers and within the branch network. Promising areas for innovation include Shariah finance, delivering ‘social value’, and managing intelligence.