News Column

Posing a threat: Non-traditional financial services

May 19, 2014



The report, Retail Banking 2020: Evolution or Revolution, based on a survey of 560 financial services executives (20 of which are from the Middle East) from leading financial institutions in 17 countries, also found that over half (54 per cent) believe that large banks will be the winners in 2020. The remainder (46 per cent) see smaller banks capturing share through increasing differentiation. Executives are also divided as to the threat posed by non-traditional new players: while 55 per cent believe they pose a threat to traditional banks, 31 per cent believe they present innovative partnership opportunities.

Executives differ in their views by region. For example, many more US executives view non-traditional new market entrants as a threat (71 per cent), than executives in Asia (42 per cent), where more view them as an opportunity (44 per cent) for partnering and prospering together.

Graham Hayward, Middle East Region Financial Services leader at PwC said, "Powerful forces are transforming the retail banking industry, while growth across the Middle East markets is following market share, costs are proving hard to moderate although returns remain moderately strong. Regulation is impacting business models and economics. Technology is rapidly moving from being an expensive obstacle to a critical part of both customer experience and effective operations. Customers are demanding higher levels of service and a unique experience through new channels. Local banks are well positioned, although global banks seem to be able to better service the clients by providing solutions that meet the specific needs of clients based out of the region"

Over two thirds (70 per cent) believe it is important to consider how global trends (such as economic growth, regulation, and social, demographic and technological changes) will impact the banking industry in 2020. But again, there were differences by region. For example, fewer US (61 per cent) and European (67 per cent) executives think it important to form a view of the industry in 2020 than executives in the emerging markets (79 per cent).

Ninety per cent of executives agreed that six key priorities identified by PwC for success in 2020 are important:

??Putting customers first;

?Getting to grips with the move from traditional branch-based to digital banking;

??Simplifying business and operating models;

??Ensuring they can harness the power of big data;

??Innovation;

??Pro-actively managing risk, regulation and capital.

However, only a fifth (20 per cent) feel well-prepared to address these priorities.

Akhilesh Khera, Director in Financial Services, at PwC Middle East said, "Banks universally agree that they are hindered from addressing top priorities such as innovation by financial, talent, technology and organisational constraints. Banks need to take aggressive action to overcome these constraints to enable innovation and transformation, while preserving their ability to capitalise on market opportunities and address unexpected challenges.

"In the Middle East with so many growth opportunities presenting themselves, the key for financial institutions would be to come up with new ways of operating and products and services in order to add value to the customer, while simultaneously meeting increasing regulatory requirements and mitigating new risks."

EMERGING MARKETS

When asked to name the top three challenges facing the banking industry, 47 per cent of emerging markets executives were most concerned about attracting new customers, followed by attracting and retaining talent (43 per cent) and new market entrants (29 per cent). The top three investment priorities for emerging markets executives are enhancing customer service (47 per cent), followed by R&D and innovation (36 per cent) and new product development (32 per cent).

Hayward said, "Most Middle East banks operate at higher costs than market norms. While growth is being achieved following market expansion, returns are frequently not optimised. Banks must understand where they have a competitive advantage and where they don't to manage costs appropriately, and seize the opportunity to redeploy resources to activities that add value to the business.

"Operating models that are customer- focused and delivery channels that meet the needs of the expanding and highly mobile population are of chief importance. Furthermore, understanding and being able to effectively manage the processes that support and enhance service-delivery to customers will create additional competitive advantage for the banks that do it well."

Operating models that are customer- focused and delivery channels that meet the needs of the expanding and highly mobile population are of chief importance. Furthermore, understanding and being able to effectively manage the processes that support and enhance service-delivery to customers will create additional competitive advantage for the banks that do it well


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Source: Banker Middle East


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