Universal banks are not doomed but are being challenged. There is, however, a window of opportunity to evolve the model, and there is much to win for those who act now.
That is the conclusion of McKinsey's
In many markets, daily banking activities simply make very little or no money and even if they are gateways to lending and wealth management, there is a structural challenge as solutions and offerings go digital. As scale in retail has shifted from the density of one's brick-and-mortar presence to ability to efficiently and effectively invest in technology, digital solutions cherry-pick attractive retail profit pools and consumers continue to engage digitally, banks now need to compete for digitally oriented customers on a digital battlefield.
Universal banks bring great strengths, including reputation, assets, data and ubiquity, to the fight, but need to keep three principles in mind as they engage.
First, they must reshape to match customer demands. Banks have to strengthen their core "basic product" business offerings across all areas —savings and current accounts; consumer loans and mortgages; and wealth management. For a start, banks will have to make it easy for customers to use mobile apps to do just about anything.
At the same time, there will continue to be a need to ensure that there is human expertise on demand, whether in person or remotely and in fact
Before the pandemic, there was still a large group of consumers not yet willing to do most of their banking digitally; now the average consumer is willing and got somewhat used to the idea. But expectations of ease of use, convenience and even delight in the experience have increased in lockstep, so today's banks need to be as good as the best digital natives and their digital marketing, at using data and advanced analytics prowess to spot trends and offer personalized products and services.
Next, universal banks need to rethink the value proposition to expand the customer relationships. With digital entrants working hard to pick off profitable segments, banks need to take the opportunity to expand their role within the banking domains (daily banking, lending and wealth management).
Banks already play a critical role in all these, and customers trust them to deliver a broad set of services, but the opportunity is now to expand and move into new income streams and build broader relationships. Take housing, where banks' offer could include everything from property search, real estate agent, mortgage financing, hiring of contractors (for pre-move repairs or renovations), movers and assistance in preparing the property for rental.
Finally, universal banks must reorganize for speed. To win the digital battle, banks will need to operate like tech companies. Big Tech will always have an ability to outspend banks on tech. But banks can learn from tech to evolve their models to win. Data and analytics will be central to creating the hyperpersonalized experiences required.
Banks have ingoing advantages vis-a-vis Big Tech in terms of customer engagement and data, but they rarely unlock them. The eroding economics of daily banking demand that banks modernize their tech stacks and adopt agile development models. Crucially, sustaining this more dynamic operating model will require a dramatic shift in skill profiles: from processors to problem solvers. Just as the role of the branch shifting from service to sales led to a shift from tellers to universal bankers, the shift to agile will shift the mix from tech ops and infrastructure to developers.
Managing this migration will be a central challenge. Banks will fundamentally have to rethink capability building, recruiting and retention and the business environment to be attractive to the talent of the future. The current environment of complex approvals and manual testing to digital development from code to production, taking days or even more often weeks.
That is not an
Retail banking is far different today than it was five years ago, and it will be different five years from now. Incumbent universal banks can continue to lead and prosper, but only if they get ahead of the pace of change. Those that stick to the old playbook or fail to adapt will miss out on the opportunities and inevitably fall behind.
