Press release

PwC: Over half of retail banking executives think non-traditional financial services providers are a threat to traditional banks

Research from PwC has revealed that over half (55%) of senior retail banking executives view non-traditional financial services providers as a threat to traditional banks. 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%) believe that large banks will be the winners in 2020. The remainder (46%) see smaller banks capturing share through increasing differentiation. Executives are also divided as to the threat posed by non-traditional new players: while 55% believe they pose a threat to traditional banks, 31% 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%), than executives in Asia (42%), where more view them as an opportunity (44%) 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%) 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%) and European (67%) executives think it important to form a view of the industry in 2020 than executives in the emerging markets (79%).

90% 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
  • proactively managing risk, regulation and capital.

However, only a fifth (20%) 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 & 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% of emerging markets executives were most concerned about attracting new customers, followed by attracting and retaining talent (43%) and new market entrants (29%). The top three investment priorities for emerging markets executives are enhancing customer service (47%), followed by R&D and innovation (36%) and new product development (32%).

Graham Hayward, Middle East Region Financial Services leader at PwC, 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.”

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Notes to Editors
To download a copy of Retail Banking 2020: Evolution or revolution, please visit www.pwc.com/banking

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