GlobalData’s Retail Banker International asked leading industry figures for their views on the coming year, and profitability was a consistent topic.
Madhur Kumar Jain, Senior Vice President and Global Head of Solution Consulting, SunTec Business Solutions told GlobalData: “With Challenger banks, fintechs and BigTechs leading the disruption drive, there is no looking back for the industry or the consumer.
“This pressure has actually made them [large retail banks] look inward, especially where they are struggling to meet profitability targets and keep margins, as well as not being boggled down by the legacy IT systems.”
Ian Bradbury, CTO Financial Services, Fujitsu told GlobalData: “Banks will be facing a tough decision – whether to find opportunities to partner with digital-first non-banks, or to rise to the challenge and compete with the new players in the market.
“The increased competition on the market means that banks’ profitability and wallet share will inevitably suffer.”
Jonathan Shawcross, Managing Director of Banking, Gobeyond Partners told GlobalData: “2019 saw continued pressure on the traditional UK banks. Margins remained squeezed through rates staying lower for longer.
“Throughout this coming year, we expect to see the profitability squeeze continue in an increasingly difficult UK banking market – this will only make such major investments more and more challenging, yet more and more critical. These will be difficult decisions to make.”
Sanat Rao, Chief Business Officer & Global Head at Infosys Finacle, told GlobalData: “Amid growing pressures of competition and declining profitability, banks will be quick to formalise their strategy, and move away from the universal banking model. Banks will juggle variables of size, cost efficiency, experience, segmentation, and personalisation for the most optimal blend of scale and value.”
Anand Subbaraman, General Manager, Retail Banking at Finastra suggests that the new digital banks also face challenges. He says: “It’s not sustainable for challenger banks to continue losing money in the pursuit of customer acquisition. The race is on. Not all challenger banks will survive a downturn. I expect consolidation in the form of mergers and acquisitions over the coming year.”
GlobalData banking editor Douglas Blakey, says: “Retail banks face fundamental profitability challenges and not just as a result of increased market disruption from new challengers.
“In the US, we are starting to see digital challengers steal market share away from the incumbents in the personal loan sector. At the same time, fintechs are becoming major players in Asia.
“Low growth rates and near zero interest rates will remain key issues in particular in Europe for many years. On the other hand, US retail banking metrics remain positive with strong growth in deposits, mortgage originations and consumer lending. And in parts of Asia banks have been able to increase their margins.
“The challenge in 2020 for banks is to continue to target a rise in their non-interest income while continuing the relentless drive to cut costs."
