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Retail banking priorities 2015 [Click to Enlarge]

The need for a digital strategy has leapt to the top of retail banks’ agendas over the past year, replacing regulatory issues, as they look to fend off competition from tech and e-commerce rivals.

Sponsored for the second year by financial software specialist Temenos, the EIU canvassed 208 banking executives internationally for their views on the challenges and changes they expect over the next five years. This was followed by 22 in-depth interviews.

While regulatory changes are still seen as having the most effect on the industry overall, banks are no longer listing the need to respond as a primary concern – in last year’s survey it was rated top priority by 49% of respondents; this year that has fallen to 35%. Implementing a digital strategy has climbed from fourth place last year, cited by 37% of respondents, to top place, cited by 46% of respondents.

Monica Woodley, editorial director for content solutions at The Economist Group, said that the surge in interest in digital channel strategies was driven by concerns over competition from new entrants – 35% of respondents cited it as having the biggest impact on the industry, up from 22% last year. “Tech and e-commerce companies are the competitors that banks fear most,” she said.

Regulation hasn’t gone away, said Ben Robinson, chief strategy officer at Temenos: “Our customers are telling us that compliance is still painful, but at least there is more certainty. What they are now worried about is losing points of contact with their customers and being consigned to being a middle office provider of financial services.”

Robinson said that one way for existing banks to approach the arrival of alternative services providers who specialise in providing a single part of the value chain would be to create a marketplace where they can offer the services to their customers – in the case of P2P lending, for instance, they could provide referral services. “We are telling people that that once you lose business to the new service providers you are not going to get it back, therefore you should offer their services through your platform,” he said. “And not just financial services – if a bank is selling a mortgage, why not refer the customer to a solicitor?”

On the rise in importance of building a strategy for digital banking, Robinson said that different firms are at different stages: “Digitisation is a journey: you need a single view of the customer and you need real-time data.”

One surprise in the findings of the report was that only 8% of respondents said that they were focussing their digital investment in analytics – down from 14% last year. Robinson said that this was perhaps because many institutions have to sort out their data siloes before they can derive useful benefit from analytics, but they are in danger of squandering an opportunity.

“Banks have one big advantage, which is that they have data about their customers, and to capitalise on that data they need to look at analytics,” he said. In fact analysis of unstructured data was cited by the majority of respondent.

Overall, the respondents have a very gloomy outlook for the retail side of their businesses, expecting it to fall from 35% to 16% of revenues by 2020 while business banking will grow from 31% to 36%, wealth and asset management from 15% to 20% and investment banking from 19% to 26%.

Robinson said he was surprised at this “defeatist” attitude and that it is “naïve to assume that revenues will be picked up in other areas like business banking and SMEs – they are just at different stages of the same development”.

The Three Rs of retail banking; Regulate, Revise, Re-envisage