PwC's retail banking research found that new regulations are forcing financial institutions to re-examine their mix of businesses. This presents banks with a unique opportunity to modify their approaches to examining and balancing their customer and product portfolios. PwC suggests a framework that aligns a firm’s customer priorities with the management of capital, funding, and risk.
As currently drafted, Basel III and Dodd-Frank have the potential to increase the cost of doing business, while reducing profit margins and returns on equity. Given the pressure from external stakeholders (such as regulators and investors), key capital, funding, and risk management decisions are being made without sufficient consideration of the long-term implications to the customer experience. Aggravating this condition, clients have grown more sophisticated while cross-selling has grown more important. And our retail banking research indicates that customers perceive financial services institutions to be too impersonal, and have come to expect personalization as part of the base offering.
Leaders are implementing an integrated approach to managing the dynamic between customer impact, product portfolios, and pricing. The strategic framework should include customer experience, product profiles, likely competitor reactions and expected impact on capital requirements, liquidity, and earnings. The magnitude of sustained change presented by evolving regulation and markets also offers decision makers with a timely opportunity to enhance client and product governance processes.
Our retail banking research suggest that the sheer volume of changes has outstripped the institutional capacity for and resources devoted to change management, resulting in some decisions being finalized with limited information or integration of marketing and sales data with finance and risk data. This leaves financial institutions vulnerable to sub-optimal allocation of scarce resources and a long-lasting negative impact on customer experience, hampering growth and profitability. Best-in-class processes join CEOs and business line leaders with operations, finance, and risk to make the strategic allocation decisions.
By applying our holistic framework, we set out a series of strategic and tactical initiatives to assist leaders in moving the “dials” in the proper direction.