View in article, Includes respondents who significantly agree, agree, and somewhat agree. The most obvious is that banks, globally, need to counter the strong headwinds to achieve profitability, given compressed NIM from lower rates and lower demand for loans. For instance, maintaining resilience may pose a challenge if employee productivity declines from the myriad effects of the pandemic. The World Bank also sees this upward trend continuing in 2021. But agile methods should now be integrated into business operations. View in article, Kavita Kumar, “U.S. Bank of America’s business banking app witnessed a 117% growth in mobile check deposits.19 Similarly, digital roadshows became the norm in marketing securities. And while digital lenders may want to diversify their funding sources, banks may look to acquire fintechs for their digital capabilities and to target new segments. Deloitte’s proprietary forecasts for the baseline economic scenario indicate that the average return on equity (ROE) in the US banking industry could decline to 5.6% in 2020 but then recover to 11.7% in 2022 (figure 2). But these efforts cannot happen without establishing more robust and accurate planning and forecasting,43 which may include modeling the pandemic’s impacts on markets, customers, and counterparties to construct a broader view of potential impacts and actionable insights.44 Pushing financial planning and analysis processes into business units should improve granularity and accuracy.45 However, using current legacy infrastructure in these endeavors may be challenging for many banks. Banks’ healthy capital levels before the pandemic also helped mitigate the negative impacts from the crisis and should pave the way for the global economy to thrive in the future. View in article, Commodity Futures Trading Commission, Managing climate risk in the US financial system, September 2020. Banks were making rapid strides in their digital transformation journey, but the pandemic accelerated the pace. Insider risk is also increasing because of the psychological stress employees are likely to face as the pandemic continues.49. Some banks have already demonstrated leadership in multiple ways, but most crucially, through financial commitments. This may also result in bid-ask spreads becoming too wide, which could worsen if there is further economic deterioration. View in article, Bank of England, “Operational resilience: Impact tolerances for important business services,” December 5, 2019; OCC, “OCC highlights key risks for federal banking system,” June 29, 2020. The adage that fortune favors the brave may be quite apt in the current context. “Looking ahead, oil prices are expected to increase gradually from current levels and average $44 per barrel in 2021, up from an estimated $41 per barrel this year, as a slow recovery in demand is matched by … It was no easy feat to go fully virtual and execute an untested operating model in a matter of weeks. Conduct risk, for instance, remains a potent threat. The pandemic drew attention to well-being like never before: Most executives surveyed (80%) said their company was increasing focus on safety and well-being. But these changes, along with other forces, such as digital acceleration, will likely transform talent models in the banking industry. 06 January 2021 Natasha McSwiggan. Banks effectively deployed technology and demonstrated unprecedented agility and resilience. View in article, IMF, World Economic Outlook, October 2019: Global manufacturing downturn, rising trade barriers, October 2019. The banking industry plays a huge role in the global economy and is undergoing a huge technological shift. Certain services may not be available to attest clients under the rules and regulations of public accounting. Of course, banks would benefit if most of their customers transitioned to digital-only, self-service interfaces, which could result in significant cost savings. Some of these forces were already in motion before COVID-19. View in article, J.D. In the table below, we highlight some key strategic and operational priorities for businesses to consider. Women in the financial services industry collection, Explore the Financial services collection, Go straight to smart. New solutions, such as knowledge graphs, are available to extract the full value of data by addressing data fragmentation. We also asked about their investment priorities and anticipated structural changes in the year ahead, as they pivot from recovery to the future. Forced to respond to some exacting realities, banks learned valuable lessons in the early months of the pandemic. More than ever, modernizing the digital core and closing the gap in legacy infrastructure could feature prominently in the banks’ M&A calculus, as banks reposition themselves in the postpandemic world.53 On the supply side, M&A may be driven by banks considering sales of businesses to support earnings and rationalize their business models. Increasingly, banks can deploy managed services to cut costs for critical but less-differentiating activities. However, the first half of 2020 exposed vulnerabilities in banks’ technology arsenals. BBVA, for example, built new data analytical capabilities through a global data platform and a dedicated “AI factory.”25, Another lesson banks could learn from fintechs is how to leverage customer data and analytics to digitally deliver hyperpersonalized services and engage customers—together with partners—in new and differentiated ways. Creating stronger incentives to decommission legacy systems could help in this effort. Realizing the digital promise: Key enablers for digital transformation in financial services, Deloitte and Institute of International Finance, June 4, 2020. Understanding the client and engaging with them appropriately can result in client sa… LoB heads should also be asked to assess whether they are competitive in all the spaces they play, and if not, consider exiting those businesses and activities. U.S. Bank rolls out new branch formats for digital age. Banks have embraced their social purpose with a new energy and focus: how best to contribute to a more equitable and sustainable society. The chief risk officer may also want to partner with the institution's chief sustainability officer, and industry organizations to create new risk standards and models that include climate risk. HSBC Private Banking . For instance, they may consider nearshoring some offshore positions to embrace a true multilocation model. Low rates are expected to keep net interest margins (NIMs) suppressed, creating strong headwinds to banks’ interest income growth. To fully realize the digital promise in the front office, banks can elevate customer engagement by deploying an optimal mix of digital and human interactions, intelligent use of data, novel partnerships, and compelling service delivery models. Strengthening resilience, accelerating transformation, Redefining the art of the possible in a post–COVID-19 world, Sustainable finance: A unique opportunity for inspiring leadership, Digital customer engagement: The next frontier, Talent: Boosting well-being and productivity through resilient leadership, Operations: Building long-term resilience, and using technology for strategic cost transformation, Technology: Capitalizing on the multiplicative value of different technologies, Finance: Driving strategic value through data, Risk: Creating a new risk control architecture, Cyber risk: Investing for greater resilience, M&A: Rewriting the playbook for a postpandemic world, Key actions to consider in the business segments. Chase recently released the results of its Digital Banking Attitudes Study, which revealed Americans have largely adjusted to—and are ready for—a primarily digital banking environment: Add to this that, in the two years prior to the pandemic, the number of customers leaving their financial institution for another was around 12%—whereas this survey suggests it will jump to 27% for large banks between 2020 and 2022. View in article, Julie Bernard, Deborah Golden, and Mark Nicholson, Reshaping the cybersecurity landscape: How digitization and the COVID-19 pandemic are accelerating cybersecurity needs at many large financial institutions, Deloitte Insights, July 24, 2020. She is a Vice Chairman of Deloitte UK and the global lead client service partner for a major financial services organisation. Translating these goals into business-specific actions and outcomes will be a balancing act, and may require some short-term financial sacrifices. Moreover, transitioning to cloud-native, API-driven core systems could help bank leaders radically rethink product design, as neobanks and bigtechs have done. Social login not available on Microsoft Edge browser at this time. Forget Where’s Wally, Where’s Jack? The 2021 Business Leaders Outlook survey is a snapshot of the current business environment based on the responses of 1,000-plus senior executives from U.S. middle market companies with annual revenues from $20 million to $500 million. But how do these considerations translate to the individual business segments? There are too many manual processes involved across the risk management function. View in article, Global Reporting Initiative, “Global sustainability standards board,” accessed October 26, 2020. In addition to these enterprisewide initiatives, implementing LoB–level cost transformation efforts may be required. To bolster revenues, many banks try to leverage fee income as the primary driver of growth, but such prospects may be limited, given the somber macroeconomic climate and surge in industry competition. In this regard, technology’s true power—its ability to reshape risk frameworks in more meaningful ways—has yet to fully be realized. Deloitte forecasts indicate that in the United States, both revenues and net income for US commercial banks won’t bounce back to reach prepandemic levels until 2022.51. The pandemic brought M&A activity in the banking industry to a halt in the second of quarter of 2020. Meanwhile, regulator concerns about financial crimes in the areas of cyber fraud and anti-money laundering increased. It will be majority owned by Walmart https://trib.al/GpwyByn, UK government fintech review to identify key areas to alleviate Brexit consequences Which is why banks will spend a shed-load of money on digital transformation. Within banks, while the board and CEO set the tone and inspire action, the chief sustainability officer should be empowered to more forcefully influence culture and behaviors across the institution. Second, scale, more than ever, could become critical as profitability pressure will put costs into greater focus. which discusses the once-in-a-generation opportunity caused by the pandemic for banks to accelerate transformation in order to grow, cut costs, connect with customers and drive a more sustainable future. In Europe, similar challenges exist, and overcapacity, fragmentation, and the lack of a banking union, could further confound recovery prospects. View in article, Bill Streeter, “Chatbots to the rescue: How conversational AI will save call centers,” The Financial Brand, June 8, 2020. Truly great financial products are based on great usability in sync with specific user needs inside a well-developed digital ecosystem. Indeed, given the low interest rates that have continued to weigh heavily on banks’ net interest income (NII) View in article, JP Morgan, “JPMorgan Chase commits $30 billion to advance racial equity,” October 8, 2020. View in article, Alaina Sparks et al., Beyond COVID-19: New opportunities for fintech companies, Deloitte, April 15, 2020. In addition to helping allocate or redirect capital toward economic activities that are net positive to societies, they can also nudge new behaviors among clients and counterparties. These new assumptions and risk assessments should be more directly embedded into stress-testing exercises. There are lots and lots and lots of reports and predictions for 2021 in banking. There may not be one core systems solution that fits all, so to determine which option is best, banks should evaluate the sustainability of current platforms, their appetite for risk, and the need to innovate their offerings. View in article, These estimates are based on Deloitte’s proprietary analysis. New levels of internal and external collaboration were achieved. They can also nudge new behaviors among clients and counterparties. Banks should heed this call and get more creative about building economically attractive and durable business models. Of course, this is a broader cross-industry problem that banks can work with clients and data vendors to address. To start, maintaining focus on operational risks is critical. Co-authors Val Srinivas, Jan-Thomas Schoeps, Richa Wadhwani, and Abhinav Chauhan wish to thank the following Deloitte client services professionals for their insights and contributions, Joe Alt, Daniel Bachman, Jamie Baker, Eddie Barrett, Maximiliano Bercum, Julie Bernard, Vikram Bhat, Alex Brady, Robert Contri, Desiree D’Souza, Margaret Doyle, Peter Firth, Tom Freas, Rob Galaski, Sylvia Gentzsch, Corey Goldblum, Prince Nasr Harfouche, Gys Hyman, Courtney Kidd-Chubb, Jason Marmo, Jojy Mathew, Garrett O’Brien, Timothy O’Connor, Margaret Painter, Parth Patwari, Larry Rosenberg, Shailender Sidhu, Chris Thomas, Troy Vollertsen, Deron Weston, and David Zierler. It could be a precursor to what one might see more broadly in the future.27. Overall, the relatively smooth transition to a new virtual operating model is a testament to years of preparation and regulators’ attention on operational resilience.32. Banks should eschew perfection in favor of agile execution. Second, to cut costs, banks should reexamine the build-buy-outsource/offshore model for technology projects. Uncertainty about the effects of the pandemic will likely remain for the foreseeable future. We serve our clients locally, while drawing upon the firm’s considerable global resources and industry expertise. Banks have an opportunity to become purpose-driven global leaders. See Terms of Use for more information. For instance, 44% of retail banking customers said they are using their primary bank’s mobile app more often.17 Likewise, at Nubank, a Brazilian digital bank, the number of accounts rose by 50%, going up to a total of 30 million.18. They should institutionalize the lessons from the pandemic and build a new playbook by strengthening resilience now and accelerating the transformation in the postpandemic world. In the United States, the Commodities Futures Trading Commission urged financial market participants to “move urgently and decisively to measure, understand, and address …[climate] risks.”10 Similarly, the European Central Bank now expects banks “to integrate climate and environmental risks in business strategy, governance, risk management and disclosure.”11, There are also new laws in the works, such as the Climate Change Financial Risk Act introduced in the US Senate in November 2019, which calls for the US Federal Reserve to help develop climate risk stress-test scenarios.12, Similarly, various industry entities, such as the Institute of International Finance, the World Economic Forum (WEF), the Task Force on Climate-Related Financial Disclosures, and the Partnership for Carbon Accounting Financials (PCAF) have also proposed structural changes to climate risk standards and transparency.13. Last, banks should also bolster their transition risk services and solutions to clients as they decarbonize.15 The field is ripe for capital market innovations to create and trade carbon credits, and, more broadly, share climate risk across market participants. Survey respondents were asked to share their opinions on how their organizations have adapted to the varied impacts of the pandemic on their workforce, operations, technology, and culture. View in article. View in article, Ajit Kambil et al., “Reinventing FP&A for the pandemic and beyond,” Deloitte, 2020. Nearly four in five respondents agreed38 that COVID-19 has uncovered shortcomings in their institution’s digital capabilities. In this regard, robust identity governance and administration and next-generation authentication through password-less experience are considered effective solutions. While some unique challenges remain—the lack of common global standards, insufficient data, and unclear metrics to assess sustainability performance and outcomes—these issues are starting to be addressed. Banks can help reallocate capital toward economic activities that are net positive to societies. This would likely require a top-down cultural change. Banking industry consolidation could kick into high gear. This drastic contraction in the global economy has already meaningfully diminished loan growth and payment transaction volumes. Given their unique and vital role in the global economy, banks should be at the forefront of leading social change and mitigating climate risk by reallocating capital, enhancing risk frameworks, providing greater transparency, and improving data and reporting standards. To be most effective, these resilient leaders31 should be future-focused and empathetic. When the pandemic brought the world to a halt, bank chief financial officers (CFOs) and treasurers faced a barrage of priorities. Finally, in the post-COVID-19 world, risk fundamentals are unlikely to change, but risk leaders should rethink old governance models and the way they are applied. But to fully realize the digital promise in the front office, banks should use various levers to elevate customer engagement. 2. They should consider offering “finance-as-a-service” to internal stakeholders, which would enable more robust business decisions. The chief risk officer (CRO) is also central to this transformation. COVID-19 not only accelerated digital adoption, it has also been a litmus test for banks’ digital infrastructures. Global GDP growth was waning, but the pandemic exacerbated the slowdown. And a new normal where payments are all digital too! For instance, regulators in Europe have reiterated the need for banks to consolidate across borders and drive diversification.54, Similarly, the US Department of Justice is contemplating an overhaul of its outdated bank merger competitive review guidelines to reflect the current realities of a digitized world.55 This may remove barriers to mergers and acquisitions, particularly among smaller/rural banks, according to the Conference of State Bank Supervisors.56. Increased regulatory scrutiny on security and privacy, and migration to the cloud are amplifying this challenge. CFOs should be flag bearers of an innovative, data-driven decisioning framework and more targeted capital allocation,48 which can yield higher-quality outcomes, such as better return on investments. Trending. For instance, educating consumers on better debt management and being empathetic in debt collection efforts could help strengthen banks’ customer relationships and engender trust. To attract this talent, banks could need to offer agile work environments and new technologies that would shift away from having employees handle repetitive and mundane manual tasks, allowing them to focus on analytical, creative, and strategic activities. Georgia’s guides, Airbnb hosts, and restauranteurs – at least those still in business – are desperately hoping that things get back to normal in time to revive the industry this year. Our survey of 200 global banking executives revealed that this challenge is particularly acute in Europe, where almost 60% of survey respondents indicated that employee fears of returning to work will hamper their ability to succeed after the pandemic. International Monetary Fund (IMF), World Economic Outlook, October 2020: A long and difficult ascent, October 2020. A cornerstone of this outlook—which includes positive adjustments to several economic estimates (read the economic outlook here)—rests on sustaining the V-shaped recovery that began in May 2020, leading to 6.4% global GDP growth in 2021 and price appreciation for a wide range of asset classes. However, with crisis comes opportunity, even during these challenging and uncertain times. COVID-19 inflicted enormous stress on banks’ operations, and there were hiccups at some institutions. The Banking Industry Will Face A Range Of Challenges In 2021. Progress on digital transformation could fall short if banks do not get a handle on data quality, architecture, and governance. So, actively monitoring and exerting a strong risk control culture, possibly through new surveillance and control tools, should be a priority. The outlook remains bright, regardless of the current pandemic. Global investment banks outlook ‘stable’ for 2021 Marie Kemplay Monday, 4 January 2021 The world’s largest investment banks are in a relatively strong position to handle any further economic headwinds, according to Moody's. They should develop new talent models to facilitate flexible, self-organizing teams that come together for a common purpose. THE NEXT BANKING LANDSCAPE AFTER PANDEMIC The Behavior Megatrends | The Strategy Perbankan menjadi sektor kunci dalam pemulihan ekonomi pasca pandemi. There was no existing playbook, so bank leaders had to find new ways to do things. 26. Untuk mempersiapkan “win-back year” 2021 maka setiap pemain harus memahami perubahan lingkungan bisnis di next normal.Inventure menggelar Indonesia Industry Outlook (IIO) 2021 yang menampilkan kajian riset dan prediksi peta bisnis dari para pemimpin di 40 industri dari banking hingga otomotif, dari pariwisata hingga UKM.. IIO 2021 adalah industry conference pertama dan paling … While customer experience can be tricky to quantify, client turnover is substantial, and client loyalty is rapidly becoming an endangered idea. Varying and confusing terminology, and the lack of commonly accepted global standards are another barrier. Generally, these losses are smaller than during the GFC, when US banks recorded a loss ratio of 6.6% from 2008 to 2010.4. https://eos.org/editor-highlights/fm-radio-on-jupiter-brought-to-you-by-ganymede, Finance Monthly Game Changers Awards 2017, Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. Private Banking . How can the emerging lessons serve as a catalyst for business transformation? Respondents were equally distributed among three regions—North America (the United States and Canada), Europe (the United Kingdom, France, Germany, and Switzerland), and Asia-Pacific (Australia, China, Hong Kong SAR, and Japan). Banking leaders around the world have faced an array of challenges on the talent front, from shifting to a remote, distributed workforce to finding ways to keep employees engaged and productivity high. Until the current economic disruption subsides, CFOs and treasurers should continue to focus on preserving liquidity and boosting capital. More than one-half of respondents are reassessing their global footprint (countries, cities, office configurations) and preparing more comprehensive crisis management approaches and documentation (figure 4). Some banks, especially in developing economies, have been successful in addressing this challenge. (For more information about our survey, see "Survey methodology.") Regulators were also keen to receive more detailed and frequent reporting from banks on the various risks they were facing. Ensuring only authorized users have access, assigning different privileges, and protecting customers from fraud, identity theft, and privacy abuses, while providing a seamless experience, is easier said than done. Lastly, chief technology officers, along with other C-suite executives, should ask how far, how deep, and how wide digital transformation should go to help banks achieve their long-term goals. In this report, KPMG experts provide a number of predictions for the banking industry across 10 key areas. Banks should also buttress risk sensing. Realizing the digital promise: Key enablers for digital transformation in financial services, Chatbots to the rescue: How conversational AI will save call centers, Banks left with pockets full of cash and few places to go, Reinventing FP&A for the pandemic and beyond, CFO signals: 2020 Q3: Some economic recovery, but growing skepticism about the pace going forward, Banks raise concern over insider threats as pandemic takes toll on mental health, Tech in banking 2020: The race to digital adoption, Cross-border mergers in Europe would help diversify banks - ECB's de Cos, Antitrust Division seeks public comments on updating bank merger review analysis, CSBS comment letter: Antitrust Division banking guidelines review: Public comments topics & issues guide, Preparing for the future of commercial real estate, COVID-19 return-to-the-workplace strategies. 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