Ten years from now: Banking - but not as we know it?

What will banking look like in ten years’ time and what can your business do to put itself in the strongest position to succeed?

At our European Banking Transformation and M&A Conference in March which I chaired, discussions centred on the possible future shape of this fast changing market. We also explored how the industry could turn the threat of disruption, challengers and unsustainable costs into a catalyst for competitive regeneration.

While some roads ahead such as a low cost/low risk ‘utility’ model might not deliver spectacular profits, they could prove highly attractive to institutional investors by being able to deliver stable returns over the long-term. And I came away convinced that there are also opportunities for radical reinvention. These range from the creation of digital-only and specialist lender ‘speedboats’ to a marketplace model in which banks can bring in services from other industries and maximise the full potential of their considerable customer bases.

Stripped back to compete

The scale of the transformation predicted by 2029 is sweeping. Imagine a market in which virtually all back and middle office functions could be shared or outsourced to utility providers, leaving banks to focus on innovation and differentiation at the customer interface. Technology will have transformed customer service in areas ranging from portable KYC passports to a move from standardisation to mass personalisation.

This isn’t a market where ‘same as’ is going to be good enough. Within retail banking, challengers have already raised the bar for customer expectations. In the business market, new sources of funding are opening up all the time and services that would once have been the preserve of large corporates are being made available to smaller and smaller firms. It was also fascinating to hear questions on whether consolidation could lead to the emergence of a pan-European investment banking champion to rival the currently dominant US giants.

Big Tech threat

The big question is who’s going to be leading the way – regenerated incumbents, scaled-up challengers or Big Tech entrants. When participants were asked what is the company that could present the biggest threat to their businesses, you may or may not be surprised to hear that Amazon was the number one choice. In addition to increasing penetration into financial services, the conference floated the possibility of even more disruptive threats from Big Tech - including the launch of their own cryptocurrencies that leave banks cut out of the loop.

Foundations for transformation

Preparing for transformation on this scale demands clear leadership and time to adjust – the big risk is trying to play catch-up in five, let alone ten, years’ time. I’d like to leave you with the thought that sustaining relevance requires a vision of how you want to compete and how you can play to your strengths. With legacy holding back operational capabilities for some, the groundwork is a step-up in simplification and outsourcing. This could then pave the way for an acceleration in digitisation, automation, partnership building and targeted acquisition.

So, the conference mapped out a future where ‘standing still’ is not a viable option. Yet, this is also a marketplace where everything is still to play for and an improvement in returns is on offer to banks that are prepared to make the leap.