How banks can emerge stronger in 2021

08 January, 2021

Peter Pollini
Banking and Capital Markets Leader, PwC US

2020 was a challenging year that started with the convergence of three major crises in 100 days: a global pandemic, economic volatility and mass protests over racial injustice. All considered, and while there are still headwinds, the banking and capital markets industry has navigated the climate gracefully, transitioning seamlessly into the demands of remote work while playing a vital role in economic stabilization efforts. Of particular note was our sector’s technology and infrastructure investments which helped firms adapt in a hurry, providing sales and service support at scale without missing a beat.

But the road ahead promises to have its share of challenges, too. Economic uncertainty and the race to distribute a vaccine, coupled with unemployment at unprecedented levels, is making planning complicated. With this as a backdrop, we do expect increased pressure on earnings as credit performance remains tied to the economy and low interest rates continue to pressure margins for those institutions with less access to fee-based offerings. We also expect shifting regulatory demands with a new administration, which could increase complexity in the operating environment even further.

So, what should you do? While each institution will respond differently, there are five key themes we expect executives and board members will likely be discussing with their stakeholders as we close the door on a complicated year:

1. Up your agility

As we’ve seen in 2020, crises can often occur in clusters, with natural disasters such as hurricanes and wildfires coinciding with economic downturns or social unrest. The combination of impacts and responses may make it hard to adapt. Of course, institutions are supposed to be ready to act quickly; that’s the point of resilience planning. They need to be ready to withstand rapid, unforeseen changes, but more importantly, ready to find new opportunities and fill gaps when those changes occur. The pandemic placed restrictions on brick-and-mortar retail, forcing many customers to break habits they’ve been clinging to, like depositing checks in person rather than digitally with existing smartphone technology. So, faced with this year’s challenges, how well did you do? Management and Boards should take the time to assess their performance, see how well they managed multiple unforeseen events at scale, and then decide how to adjust the playbook for future events.

2. Fill the gaps

M&A has begun to rebound as banks rethink long term success by focusing on capital strategies, customer access, fee based products and delivering at scale. You will want to understand where your opportunities lie so you can act quickly — whether to pursue geographic or demographic expansion, add complementary capabilities, or divest of non-strategic businesses. Every institution’s view of the opportunity for growth will differ. But as we move into 2021, we expect to see continued consolidation, expanded focus on partnerships and opportunities for those able to capitalize on long term investments.

3. Keep innovating

Leading banks continue to invest in technology to improve efficiencies whether they are customer facing, such as AI-based customer support, or merely tactical, such as back office reconciliations or cloud migration. This investment is important to keep pace with the competitors, reduce long term cost, extend customer reach and expand into new channels. Certainly, larger firms have an advantage in their ability to spread their technology investments at scale, but partnerships allow smaller players to move quickly. FinTech is critical to the competitive landscape as the use of new technology and APIs allows even the smallest banks to give their customers innovative offerings and value.

4. Evolve the workforce

COVID-19 has accelerated the trend toward digital innovation. The industry has adapted surprisingly well to working from home, and this is leading many firms to rethink what the office experience looks like. Long after the pandemic, we’ll want to take advantage of what we’ve learned. One key discovery: firms that engage with their employees to solve problems often have more satisfied teams and more creative solutions. Our experience has demonstrated that when you upskill your talent base, you jumpstart new and better ways of working.

5. Manage risk

We expect regulators and risk professionals to take out their magnifying glasses and evaluate change more closely. Boards and management cannot pay too much attention to financial reporting, operational risks and controls in the wake of the unprecedented change we have been forced to respond to. It will take work, but it’s worth it to ensure that the changes you’ve made are sustainable. You’ll also want to check that you have developed proper controls, both in mundane areas like remote work and in more complicated areas such as the accelerated use of artificial intelligence and machine learning.

Now that the election is behind us, it’s clear that there’s a lot of hard work ahead. In May 2020, 81% of CFOs told us they are planning cost-containment measures. According to a separate PwC Pulse survey in the summer of 2020, 70% of companies expect increased business taxes to pay for any additional COVID-19 government relief. Given the rate environment, the rush for a vaccine, the fragile economy and all the pressure on earnings, success will likely be driven by a bank’s ability to become more nimble, capitalize on opportunities and continue driving consumers toward digital services.

The banking and capital markets industry will continue to play a critical role in aiding the recovery. Boards and management make that possible, by focusing attention where it’s needed: becoming more agile, filling gaps, continuing to innovate, helping the workforce evolve and managing risk.

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