Banking Leaders Discuss 2014 Strategic Planning Priorities

CROWDSOURCING SERIES

As we enter the planning season with a marginally better economy than last year, banks and credit unions are faced with margin compression, high operating expenses, new competitors and channel disruption that challenge even the most efficiently run organizations.

To assist with this year's strategic planning process, I asked some of the foremost global leaders in the banking and credit union industry to provide thoughts on what they believe are the 2014 strategic planning priorities. This blog post is a companion to the post done at the beginning of the year regarding trends expected in 2013.

Understanding that each financial institution and market is different, it was interesting the uniformity of priorities offered to bank and credit union management by the more than 30 industry leaders I interviewed for this post. And while the ability to execute against these strategic priorities may be impacted by size of organization and other dynamics, there was a consensus among those who I spoke with that 2014 may be one of the most important planning cycles ever.

Enhance the Customer Experience

Improving the customer experience was the foundation of almost all of the responses I received around 2014 strategic priorities. Whether we are talking about branch reconfiguration, mobile banking applications, back office operations, etc. banking industry leaders believe an improved customer experience is the key to growth. 

As was said by Mary Beth Sullivan and the team from Capital Performance Group in their May/June Newsletter, "Many banks have a long way to go to get the basics right, so banks and credit unions should focus first on the basics. Once the basics are humming, ask yourselves: What can we do to be sure that our customers are better off banking with us than with our competition? What will make our customers lives better? How can we help them solve specific problems they are dealing with? Answers to these questions will define the experience you seek to create."

Beyond 'the basics', other specific strategic initiatives were recommended by Steven J. Ramirez, CEO of Beyond the Arc. "Developing a proactive complain management process that goes beyond regulatory requirements can drive new customer experience projects", says Ramirez. He also believes financial institutions need to determine how they can be a finger swipe away from providing guidance and support through mobile devices.

Financial industry futurist and blogger Scott Bales believes bankers need to get out of the office and talk to real customers, developing empathy for their problems, behaviors and desires if they want to develop offerings that align with the needs of the market. According to Bales, "The goal is to build experiences, not products".

Sankar Krishnan from Sutherland Global sees customer experience as the 'X factor' across all channels and interactions the customer has with their financial institution. Comparing what banks need to strive for with customer experience leaders Apple, Amazon and Quicken Loans, Krishman believes banks need to excel at aligning people, process and technology. 

Sam Maule from Carlisle & Gallagher Consulting Group believes that recent start-upssuch as Moven and Simple (and perennial cx leader USAA) are the best at visual engagement and customer experience. He quoted one of his banking clients as saying, "I would pay $500K for ONE great user experience designer. FSI's are horrible at this. We have massive data systems, huge BI tools, and more, but none of that means jack for consumers if there isn't an amazing user experience."

Finally, best selling author and acclaimed management advisor Joe Pine believes banks and credit unions must go beyond providing just checking accounts and loans.

Define Mobile Positioning

In response to the growth in smartphone adoption and customer demand, most financial institutions offer basic mobile services. But those are just table stakes. Going forward, banks and credit unions now need to determine how to position this channel for the future. 

Senior Aite analyst and Snarketing 2.0 blogger Ron Shevlin states, "The most important strategic question banks and credit unions need to address is how will the mobile channel help FIs add more value to the customer relationship, help differentiate the institution, and create a strategic advantage". He adds, "If the 2014 strategic planning process can answer these questions, it will drive decisions regarding pricing, product offerings and customer segmentation."

Noted technologist Bradley Leimer from Mechanics Bank agrees that banks need to move beyond 'mobile banking 1.0' and adopt a mobile-first mindset in regard to application development, marketing, service and transactional functionality. According to Leimer, "Banks need to build simplified journeys similar to those offered by Moven, Simple, Bluebird, GoBank and USAA." (Leimer expands on his strategic planning thoughts on his Discerning Technologist blog here). 

Senior marketing professional, Lori Philo-Cook from InnovoMarketing believes that financial institutions also need to improve the marketing of the mobile channel to customers, including enhanced training of employees and one-on-one demonstrations to customers. "The key is to better understand the needs of customers and provide personal demonstrations on how mobile banking can meet these needs", says Philo-Cook.

Multimedia and special projects editor of Finextra, Elizabeth Lumley believes it is time for banks to go beyond just mobile banking improvements and to place their bets on mobile payment partnerships. While the winners in payments have not been determined, she believes waiting is not an option.

Integrate Delivery Channels

As noted by Capital Performance Group in their May/June newsletter strategic planning article, everyone is talking about the future of branches because there is so much fixed cost tied up in this channel where fewer and fewer transactions are taking place. The challenge is not the opening or closing of a branch, however. It is the ability to integrate capabilities and information across channels, delivering an consistent experience.

Dominic Venturo, chief innovation officer at U.S. Bank believes banks and credit unions need to quickly adjust to the disruption in financial delivery channels. "Now that the majority of consumers in the US are carrying a smart-phone of some type and the technology has been used to eliminate the need to visit a branch for many activities (opening account, depositing a check, paying a bill, sending a gift card, etc) how will the delivery model of your institution change to remain relevant?", says Venturo. He adds, "The mobile wave started just a few short years ago and has already changed how we do business. Planning for the future of delivery should have already started, but if it hasn't, now is a good time."

Another retail banking executive at a top 5 financial institution believes FIs need to move to omnichannel banking which maximizes cross-channel consistency and provides a seamless user experience where and when the customers desires. This includes scenarios where the customer may begin their transaction using one channel and finish it with another.

To this end, Nicole Sturgill, research director for retail banking at CEB TowerGroup recommends, "Adjust channel strategy from ‘all transactions in all channels’ to ‘seamless integration across channels’. Our research shows that consumers prefer reduced effort over choice. They’d rather know which channels will be fastest and work best than try a channel that doesn’t work for what they’re trying to achieve. Instead banks and credit unions should focus efforts on ensuring that customers can move easily from one channel to another without degrading the experience."

Industry recognized innovator Matthew Wilcox also believes 2014 should be the year of breaking down internal channel silos and to determine how banks and credit unions can leverage channels to not just allow the client to self-serve, but to provide a positive full-service experience regardless of the channel.

Unfortunately, the back office of many financial institutions makes it difficult to break down silos that have been in place for years says Fred Hagerman, chief marketing officer of Firstmark Credit Union. He still believes that a disconnected experience has risks.

Both Virginia-based chief marketing officer of Geezeo, Bryan Clagett, and Market Insights' senior strategist Jim Perry from Chicago agree that financials should get out of their branch-based comfort zone.

London-based mobile/digital consultant for Keatan and publisher of The Bold War blog, Michael Nuciforo may state it best when he says that banks must move from a perspective of self-service (getting customers to do hated tasks themselves) to selfless service (where we focus on how the customer wants to interact). "New technology and changing customer behaviors mean that there are widening gaps between the processes of the past and the expectations of the new", says Nuciforo.

Reduce Enterprise Costs

It is no surprise to financial institutions of all sizes and in all countries that costs must be reduced as revenues have decreased and margins remain low. Many banks and credit unions have made cost reduction a perennial foundation of their strategic planning process, but more needs to be done in 2014.

"Banks must manage the cost base of the physical infrastructure and staff costs in branches to ensure that overhead of traditional operations are minimized while effectiveness of such operations are maximized", offers the Chairman of the London-based Financial Services Club, Chris Skinner. 

Bob Palmer, global financial services marketing lead at IBM agrees that there needs to be a continuation of the enterprise cost reduction strategies that are already in place. He believes these initiatives need to include a more aggressive reduction in workforce with a correlated reconfiguration/reduction of branch networks.

Melanie Friedrichs, analyst at Andera feels automation of core banking services also needs to occur. "For most institutions, I think that cost cutting through the better application of existing technology is the easiest path to a better margin", stated Friedrichs. Specific examples she provided include: increasing the percentage of deposit accounts and loans originated online, creating incentives to use online or mobile banking over branches and call centers, and investing in technology, perhaps even branch automation technology, to improve staff efficiency.

Author, 2012 American Banker Innovator of the Year, 'Breaking Banks' radio host and founder of Moven Brett King believes that banks need to dig even deeper for cost reductions. In his normal disruptive style, he challenges traditional financial organizations to make a significant paradigm shift.

Fellow disruptive thinker Deva Annamalai from Zions Bank agrees that banks need to identify processes that are outdated and archaic and get rid of them. "There is nothing more dangerous than sticking to things that we have done in the past because we are too lazy to change them," says Annamalai. "Your customers' tolerance for unneeded traditions like signature cards and other long and costly processes is wearing thin. Competitors who provide simplified, frictionless banking are ready to serve these customers."

Optirate CEO, Serge Milman adds that the future of banking may require additional scale. "Scale is needed to diversify 'concentration risk' (customer, geographic and product), attain lower funding costs, reduce unit costs, absorb regulatory burden and gain access to a broader base of potential customers," says Milman. "Options include organic growth and acquisitions."

Leverage Data

The discussion of 'big data' permeates our industry trade publication, industry meetings and blogs like mine (see here, here and here). This is because most financials sit on some of the richest sources of data of any industry, yet we rarely leverage it as effectively as possible. 

Recognized top innovator Matthew Wilcox states that while investments in innovation data management are up, banks still lag behind other disruptive companies in recognizing payoffs. "Banks have a strong hold on massive amounts of customer data and understand that their data is truly a gold mine", says Wilcox. He adds, "Initially, banks should avoid major new data initiatives until they get good at using the data they already have". 

Scott Bales suggests that banks may want to look outside their organization for help. "Bankers may want to look to data scientists, who can create stories from data to derive patterns, trends, insights and add context to interactions with consumers. The bank who best leverages their data best will ultimately win." 

Fred Hagerman from Firstmark Credit Union agrees. 

Understanding and processing data from various internal systems is imperative according to Zions' Deva Annamalai. "Break down data silos within the organization and facilitate information flow which will lead to a better customer experience," states Annamalai.

A strategic priority for banks should include the delivery of a mature enterprise data management structure that provides true parity based reporting between operational, performance and financial information", offers Jeff Fisher, director at Perficient. "From here, banks should build capabilities to further extend a bank’s ability to segment customer data and create a solid foundation to execute on a strategy to monetize customer data".

Sam Maule from Carlisle & Gallagher Consulting Group agrees and adds, "We all must be better at drilling into the contextual data that matters for customer engagement and not on creating executive dashboards for PowerPoint decks. Data analytics must lead to actual application and engagement with consumers, from customer acquisition to origination, marketing, education, collections, fraud, etc."

Nicole Sturgill from CEB TowerGroup believes that channel preference would be a great starting place for many financial institutions. "Know a customer’s preferred channels, both individually and in the aggregate. At the individual level, understanding how a customer wants to bank can drive how they are served, what products are offered, and how they are offered. At the macro level, understanding the channel preferences of the customer base can drive strategic decisions on channel investments as well as management structure."

Improve Marketing and Sales Effectiveness

As I discussed last month in my blog, the consumer purchasing funnel has changed forever, with the majority of consumers beginning their purchase process using online channels and less and less frequently preferring to visit a branch to open a new account. This new paradigm requires a shift in marketing emphasis from 'push' marketing, where mass media would bombard a consumer with messages, to 'pull' marketing, where time, place, offer and channel become much more important. 

This significant change in the purchase process requires a rethinking of strategic priorities for bank marketers in 2014 and beyond. 

James Robert Lay, president of PTP New Media and advisor to the credit union industry is a strong advocate of building a digital strategy that will lead to increased leads and sales. According to Lay, "Moving to digital channels requires banks and credit unions to stop thinking about digital as a tool that works independently of other channels and processes, but instead works together as part of a system or process." Lay continues, "Once banks and credit unions accept that the business model will need to change when dealing in a digital world, banks and credit unions need to explore how digital can align with people and products around a unified purpose."

London-based retail channel director at Misys, Alex Bray emphasizes that the future reduction in branches across the globe will require digital marketing acumen. "Banks and credit unions need to build relationships, differentiate brands and identify customer needs through digital channels instead of face to face as branches disappear," states Bray. "I think gamification and social media marketing will also play a big role here as will the importance of 'one-touch' mobile marketing."

Financial Services Club's Chris Skinner also believes that a strategic priority for 2014 will be to find ways to leverage social media and mobile for growing share of wallet through deepening customer relationships.

Finally, Elizabeth Dias, financial services and retail marketing manager at Perficient speaks for many of the banking leaders interviewed around the new strategic direction of marketing. "Successful financial services innovators will start to leverage a more integrated portfolio of technologies to be where their customers are today and identify new ways to create utility with their digital marketing strategies for tomorrow," says Dias. "There is a great opportunity for marketers to use tools like Vine, Instagram, Twitter, Facebook and Google or to develop a mobile app to solve a problem, make life easier, and of course engage with the customer as they map the digital customer journey."

Define a Differentiation Strategy

According to the list of strategic planning priorities developed by Capital Performance Group, there has never been a better (or more important) time to identify your institution's niche. How do you become the 'go to' financial provider for a specific retail or business segment? And how can you increase revenues (and potentially reduce costs) through this differentiation at a time when the consumer thinks all financial providers look pretty much the same?

According to Keatan's Michael Nuciforo, it may be as 'simple' (or difficult) as being the firm that executes the best against their plan. "The banks that are winning are the banks that are delivering," says Nuciforo. "They have refocused not on analysis paralysis, but on quality and speed of delivery." 

Serge Milman from Optirate and Melanie Friedrichs from Andera voice a similar warning around building differentiation in a crowded marketplace. While they agree that banks and credit unions need to develop strategies to set themselves apart in the marketplace, they both emphasize that there needs to be a highly focused commitment to the strategy.

Amber Farley, director of interactive services and media at Financial Marketing Solutions in Nashville, reminds us that, "Companies that usually do the best are ones that have a brand that permeates throughout the entire organization. The best companies value customer service and they make consumers want to be a part of their story". She suggests that more time and investment should be spent on internal branding initiatives by improving internal communication and energizing the organization. 

"Once each member of the entire team (from executives to the front line staff) is a brand ambassador for the bank, I think it is equally important to communicate the brand message in a consistent and aesthetically pleasing manner so that community members desire to be a part of the story. That's how life-long customers are made". 

Finally, fintech technologist Bradley Leimer emphasizes that differentiation (and innovation) do not need to be created internally or in a vacuum. Instead, he emphasizes the power of partnership with outside providers. If your firm is not able to address all of the external requirements of your customers and the marketplace, are unable to test, iterate or develop agile or lean processes that can help differentiate your organization, or simplify the customer journey and build a unique customer experience, partnering with an outside disrupter that can lead the way may be a better option. (read more about Bradley's perspective here).

Revenue, Security and Regulation

As was very profoundly offered by SourceMedia's Editor in Chief Penny Crosman, the financial services industry can't ignore the 'elephants in the room' . . . the ongoing need for revenue, the increasing importance of improved security and the reality of a heightened compliance environment. The negative impact of neglecting any of any of these strategic priorities could easily offset any benefits from the strategies discussed above.

Finding new ways to generate fees from new innovations or established products, testing new security options which will allow for greater acceptance of mobile banking and mobile payments and finding ways to improve compliance with fewer dedicated resources will be 'must haves' in 2014.

Keys to a Successful Planning Process

Whatever strategic initiatives are agreed to by a bank's or credit union's management, it should be shared and communicated with bank employees so they understand the organizations’s mission, vision, goals, and objectives and the employees’ role in achieving the objectives.

In its simplest form, a bank’s strategic planning process should answer the following four questions:

1. Where are we now?
2. Where do we want to be?
3. How do we get there?
4. How do we measure our progress?

In today's marketplace the strategic planning process must be dynamic and focused. Unfortunately, at many institutions I visit, the process becomes nothing more than an adjustment to the prior year's plan without adjustments that reflect the rapidly changing industry dynamics. In others, there is a lack of unified focus that can lead to disruption and competing priorities.

Simply going through the motions is a recipe for disaster as articulated by credit union advocate Tim McAlpine, president of Canadian-based Currency Marketing and Jeff Marsico, EVP of bank strategy at The Kafafian Group and fellow blogger.

Fintech advisor and CEO of Clientific, J.P. Nicols cautions, "Too many banks try to be all things to all people, and the universal bank model really needs significant scale to work. Bank executives should spend a a good share of their strategic planning time evaluating all of the businesses they are in (or not in) and make an honest assessment of potential growth rates and the investments and scale needed for success".  He adds, "Business lines not making the grade should be divested or closed and the investments diverted to lines where they can legitimately compete and win". 

I hope some of these suggested strategic priorities help in your 2014 planning process. Thanks to the dozens of financial service leaders that were so kind to share their thoughts.

If you have other priorities that you believe will help your fellow FI associates, I would love to have you post these in the comments section.

Additional Resources

Strategic Priorities for 2014 Planning - Capital Performance Group (June 2013)

Banking Leaders Predict Major 2013 Trends - Bank Marketing Strategy (January 2013)

Strategic Plans That Make A Difference - Mary Beth Sullivan for BAI Banking Strategies (August 2012)

Semiannual Risk Assessment: Spring 2013 - Comptroller of the Currency (June 2013)

Ten Keys to a Solid Strategic Plan For Banks - Sageworks Blog (July 2012)

Meaningful Strategic Planning Can Happen - ABA Banking Journal (May 2012)

It's Time for Banks & Credit Unions to Embrace Change

As I travel across the country, visiting financial institutions in the midst of their annual planning cycle, it is like a trip down memory lane. While the technology and distribution channels have changed, banks and credit unions are still faced with the many of the same strategic challenges we talked about 20 years ago.

As a long time banker and friend, Michael Bencic said, "Improving the customer experience, embracing change, deriving value from data, building strategic partnerships, leveraging technology, ensuring privacy and security, cutting costs and generating fees is like deja vu all over again."

I agree. While the details behind these goals have changed, why have the overarching themes stayed the same? Is it because the planning process usually begins with broad financial requirements and many involved in the process simple dust off last year's plan and hit the restart button? Or is it because, despite a lot of talk around embracing change, the industry (and the regulators) frown upon the potential risk associated with innovation and doing things differently?

In a new report just published by KPMG entitled, Reshaping Banking in a Dynamic Business and Regulatory Climate, the author emphasizes the importance of getting out of 'survival mode' and embracing change, creating new strategies, crafting new infrastructures and focusing on the customer. While there is no denying the importance of each of these issues, this report is not much different than similar reports I read in the 1990's. The primary difference is that the risk of ignoring these issues has far greater implications.

Dusting off last year's planning document and making small alterations is not enough. It will take more than simply finding ways to 'do more with less', cost-cutting and operational improvement. According to Brian Stephens, national leader of KPMG's banking and capital markets practice and author of the report, "There must be acceptance among the entire leadership team that the rapid, unpredictable, and profound change we are witnessing is structural -- not cyclical." He continues, "The debate in not about the need for change, but what changes should be made."

As in the past, the issues that must be addressed are many. The difference is that today, while the issues may look similar to the past, the issues are more interconnected than ever before and the environment where these changes need to be made is evolving at breakneck speed.

The KPMG report provides a perspective into the following critical areas as banks and credit unions plan for 2014 and beyond:

• Culture of embracing change – In today's environment, change is constant, so banks must be nimble and innovative. "Banking leaders must choose to adapt and evolve, or risk irrelevance," says KPMG. "In the future, when banks look back on this time of change, an organization's resilience will not be measured by how much adversity it endured throughout the financial crisis and this period of recovery; rather, it will be measured by how well it adapted to it." The challenge is a tradition of rigid internal resistance to change and a consequent inability to execute. The change in culture must come from the top, starting with the board and senior leadership. And it must me more than just words.
   
• Focus on customers, not products – To increase revenue, banks must determine the appropriate customers to target and how best to package the products and services for which they are willing to pay. The challenge, related to the first issue above, is that banks have a legacy of talking to the masses and giving services away for free. Without better segmentation and an understanding of what customers will pay for, the impression of any revenue initiative will be negative. Alternatively, bundling services such as mobile bill pay, alerts, ID protection, payment services, etc. using a customer-centric perspective can results in a win-win.
   
• Deriving value from data – Banks and credit unions that can extract more value from all available data sources to develop a better understanding of customer needs can serve customers more effectively and profitably, while developing a competitive advantage and staving off threats posed by new market entrants. The challenge is that all internal product-centric data silos (retail deposit, credit card, small business, mortgage, commercial, etc.) must be integrated to provide a single customer view. Once data is integrated, the customer insights need to be leveraged for better product development, new cross-sell and revenue opportunities and reduced risk.
   
• M&A/Alliances – Despite many predictions around increased M&A activity in the past that have not come to fruition, the environment today is prime for consolidation due desires for geographic expansion, product enhancement and cost reduction. The immediate issue is that organizations need to strategically evaluate whether they are a buyer, a seller, or neither, while also examining the possibility of developing alliances where strategic fit warrants.
   
• Technology – At a time when costs are being cut, the appetite for investment in technology is usually tainted by the memories of previous IT upgrades that never met expectations. Nonetheless, the ability to effectively support the integration of new delivery channels and a customer-centric view leaves most banks no choice but to upgrade aging infrastructure. "The promise of harnessing technology advances can help banks streamline operations to reduce operating costs, connect future and existing customers across a multitude of new and emerging channels, tap new revenue streams, enhance customer loyalty, and build better defenses against cybercrime and denial-of-service attacks," says KPMG. In the end, ignoring or putting off the inevitable is a risky strategy, especially with the risk of noncompliance, losing market share or not being able to support an ever more important mobile strategy.
   
• Cybersecurity – The increasing scope, frequency, and sophistication of cyberattacks on banks means institutions need to be better prepared to address a risk with implications that both enormous and unknown. With the public's trust in banks finally recovering from the impact of the financial crisis, this trust can be shattered if life savings (or even access to funds) are at risk. In addition, there are some who believe that we are at the tipping point in the acceptance of mobile banking (and mobile payments) without greater ID protection and mobile security in place. 2014 will be a year when most of these issues need to be addressed (if not sooner).
   
• Capital & Compliance – Banks will continue to need to prepare for stress testing, while also monitoring various capital adequacy and liquidity requirements and associated staffing and compliance costs. For many banks, the issue of capital adequacy may be secondary to the ongoing costs and internal 'friction' that is associated with the added staffing associated with meeting regulations
   
• Accounting for Credit Losses – Banks will need to understand revisions to accounting for credit losses on financial assets and other rules. These changes could not only have a significant impact on an institution's reported earnings, but also on its capital ratios due to the need to carry larger loan loss reserves.

While the list of issues may not be new to any banker who has been in the business more than 6 months or more than 20 years, the risk of not proactively addressing these issues has never been greater. So, if you are in the midst of planning for 2014, make sure your team is just not listing these in a SWOT analysis without building strategies to address the risks and opportunities. If you are 'done' with the formal strategic planning process, it may make sense to review the strategies and tactics planned for 2014 to make sure some version of 'status quo' is not your plan.

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Retail Bankers Unprepared For The Future

At a time when powerful forces are disrupting the retail banking industry, financial services executives agree that a transformation of the banking landscape is inevitable. Unfortunately, while they agree on the priorities that are integral to success in 2020, fewer than 20 percent feel prepared to address these priorities.

In a survey of 560 executives from leading financial institutions across 17 markets entitled, "Retail Banking 2020: Evolution or Revolution," PwC  found that 90 percent of financial services executives agree on the priorities that are the foundation for success in 2020, yet only a fifth (20 percent) feel well-prepared to address these priorities despite the fact that nearly all (96 percent) believe that a fundamental transformation of the banking industry is inevitable.

"Growth remains elusive, costs are proving hard to contain, returns remain stubbornly low and regulation is impacting business models and economics," said John Garvey, U.S. banking and capital markets leader at PwC. "Simultaneously, the evolution of technology and heightened customer expectations combined with the emergence of disruptive competitors creates new pressure to deliver higher levels of service at a time when value and trust in the sector is at an all-time low. Surviving and succeeding in this environment may require a fundamental rethink in approach."

Today's Challenges

The impact of growing and changing regulations is the primary challenge for retail banks in the U.S. (47 percent) and Europe (40 percent), where banks are trying to stop seeing regulations as a burden and hoping to weave compliance into the fabric of their operations.

In the U.S., attracting new customers (35 percent) and increasing profitability (33 percent) ranked second and third respectively, aligning with the hierarchy of investment priorities (56 percent regulatory compliance, 46 percent enhancing customer service and 30 percent implementing new technology).

Source: PwC Banking 2020 Survey

Nearly all respondents (97 percent) view innovation as a critical driver of growth – with companies who consider themselves innovative predicting 62 percent growth over the next five years, nearly double the market average of 35 percent and triple the 21 percent for the least innovative companies.

Despite understanding the importance, only 10% of CEOs view their organizations as innovation leaders. Further, 64% of CEOs agree that neither innovation nor operational effectiveness are dominant – and are looking to succeed at both.

PwC believes executives recognize they need to do things differently. According to the study, over 50% are planning to enhance their internal capabilities to foster innovation, and to create innovation management teams across business units. There is also a recognition that partnerships and third-party relationships may be the best way for banks to reap the benefits of innovation.

In the U.S., the primary areas mentioned for innovation were products (43 percent), customer interfaces/channels (60 percent), core platforms (50 percent) and customer need identifications (40 percent).

Finally, nearly three quarters (71 percent) of U.S. retail banking executives consider non-traditional competitors a threat, significantly higher than executives in Asia (42 percent), where more view them as an opportunity for partnering.

Gap Between Priorities and Preparedness

According to the research, 90 percent of the executives agree that the six key priorities for success in 2020 were:

1. Developing a customer centric business model
2. Optimizing distribution by evolving multichannel capabilities and reshaping the traditional branch model
3. Simplifying business and operating models
4. Harnessing data to deliver customer, risk management and financial advantages
5. Fostering agility and innovation
6. Proactively managing risk, regulation and capital

Banking executives agree that the priorities above are very important, with each of them scoring between 4.3 and 4.5 (out of 5) in the PwC survey. However, there was a striking gap between those ranking these priorities as ‘Very important’ (46%–64%) and those stating that they saw themselves as ‘Very prepared’ (11%–17%) and/or that they were making a ‘Significant investment’(18%–25%) in these areas. Technological, organizational, talent and cost constraints were viewed as the greatest obstacles to success.

According to PwC, each bank needs to develop a clear strategy to deal with the industry's transforming landscape. They need to decide whether to lead, to follow fast, or to manage defensively, putting off change. They need to create agility and optionality, to adapt to rapid change and future uncertainty. Yet, whatever the chosen strategy, success will come from successfully executing the right balance across the six priorities identified.

"Banks universally agree that they are hindered from addressing top priorities such as innovation by financial, talent, technology and organizational constraints, said Dave Hoffman, U.S. financial services management consulting leader at PwC. "Banks should take aggressive action to overcome these constraints to enable innovation and transformation, while preserving their ability to capitalize on market opportunities and address unexpected challenges."

Whether this is this a revolution, evolution or both is yet to be seen. Many players globally are innovating and experimenting with new products, delivery channels and analytics. The industry has historically changed very slowly – yet the pace of change is increasing rapidly.

According to PwC, the challenges in the future are clear, and but each institution's response will be unique based on their current capabilities, markets, capital strength, aspirations, etc. The key is to leverage knowledge from the industry and from outside the industry to succeed.

The biggest challenge is that banks that fail to shift gears risk being left behind.


Note: "Retail Banking 2020: Evolution or Revolution?" from PwC is a great report with an enormous amount of detail by geography, size of institution and role of respondent. It digs deeply into the challenges faced by the financial services industry and the ways different institutions are responding to these challenges.