Angel Berges - A New Era in Banking: The Landscape After the Battle

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Library of Congress Cataloging-in-Publication Data

Bergs Lobera, Angel, 1955

A new era in banking : the landscape after the battle / Angel Berges, Mauro F. Guilln, Juan Pedro Moreno, Emilio Ontiveros.

pages cm

Summary: A New Era in Banking: The Landscape After the Battle identifies the main drivers of change at the heart of this wholesale transformation of the financial services industry. It examines the complex challenge for financial institutions to de-risk business models, reconnect with customers, and approach stakeholder value creationProvided by publisher.

ISBN 978-1-62956-040-3 (hardback) ISBN 978-1-62956-041-0 (ebook) ISBN 978-1-62956-042-7 (enhanced ebook)

1. Financial services industry. 2. Banks and banking. 3. Finance. 4. Financial institutions. I. Title.

HG173.B467 2014

332.1dc23

2014022541

Richard Lumb, Group Chief Executive of Accentures Financial Services operating group

T he agenda of the financial services industry has been dominated by the financial crisis and its ramifications for the past six years. The collapse of Lehman Brothers was a watershed event for the financial system and for banking in particular. However, it would be a mistake to think that the reaction to the financial crisis, in itself, is the main determinant for the future of banking. The forces that are shaping the banking landscape range across the economic, political, demographic, and technological arenas.

We are moving into a very different world, which banks need to prepare for. Banks face a full agenda of challenges and new opportunities that impact who their customers will be, what they want, and how banks will compete to serve them. And these changes are both profound and dynamic. The banking industry faces a period of unprecedented change and an opportunity to re-architect banking businesses to be ready for the future. This is why Accenture has collaborated on the development of this book, an examination of the changes impacting banks and how to address these changes.

The financial crisis was the largest and most severe crisis to hit financial services in the era of global market integration, but it was not homogeneous in its impact. And while many of the contributing causes were global, such as imbalances in global financial flows and the trends toward market liberalization, the impacts were centered on Western banks and financial markets. Many emerging markets banking systems, as well as those in select developed countries, flourished and expanded during this period. And many of the new giants of banking come from these countries. While the response to reregulation has seen unprecedented global agreement on the principles for global reform, the rules and implementation are diverse and national in character.

In addition to rebuilding banking after the crisis, the world must adapt to a range of extraordinary changes. Banks must restructure, not to go back to basics but to move forward into uncharted territory.

The rebalancing of economic growth and the rising economic power of emerging markets, together with profound demographic changes such as the rise of the new middle class and an aging population, will define who and where the next generation of banking customers are, and what products and services they need. Meeting new needs for new customer groups and extending financial access can have a huge social dividend, but this implies important changes in the way banks will have to operate. These opportunities are already driving exciting innovation to reach and serve customers in many emerging markets.

Technological change has ushered in an era of digital revolution. The rapid adoption of technology by consumers is accelerating changes in both expectations and behavior. Meanwhile, new technological capabilities are enabling banks to reach customers in new ways, achieve new levels of efficiency, or reach new levels of insight. And as these changes benefit incumbents, digital innovation in particular, makes many traditional markets more contestable, ushering in a new era of competition. As we approach the first time in history where nearly everyone is connected, this will be a crucial dynamic of change.

At the same time, banks are subject to new requirements for transparency and governance, designed to rebuild the trust that has been severely challenged with customers and the public. As a key currency for banking, trust is critical. The very legitimacy of the banking sector as special economic agents is challenged. Alternative forms of financial intermediation, from shadow banking to peer-to-peer banking, are maturing at the same time that the structure and activities of traditional banks are under scrutiny. Banks will need to chart a course that allows them to maintain their key economic role.

Each of these changes, in itself, represents a huge challenge and opportunity for banks. Together they signify new rules of the game, new ways of doing business, and a new competitive landscape. However, the real challenge lies in the complex and compound nature of these changes which create strategic paradoxes. Banks will need to clearly assess their own landscape and choose which course to navigate.

The new landscape is not a static environment. We are all operating in a more uncertain and volatile world. For banks, future high performance will demand new capabilities and new principles that allow management to face these changes with greater agility. The leaders of banks today have a unique opportunity to remake their institutions for the future. There will be winners and losers. The journey starts with a clear appraisal of the new landscape.

T he world was already undergoing major economic, geopolitical, and technological change before the preliminary phase of the Great Recession started in the summer of 2007. The rise of emerging economies, the growing financial imbalances across countries, population aging, and the dawn of the age of mobile telecommunications were already on everybodys mind. When Lehman Brothers Holdings Inc., collapsed the world held its breath. A new era in financial services was ushered in as people realized that the twentieth century had come to an end in more ways than one.

The financial sector in general, and banks in particular, will never be the same. The crisis made readily apparent some of the most important contradictions in traditional banking models. Everything from customer relationships and distribution channels to sources of income, and from leverage and capital levels to talent management, became the subject of fierce debate among bankers, regulators, policymakers, and the general public. Collectively, banks saw their most important asset, the publics trust, vanish even faster than their capital ratios were eroded by the onslaught of the crisis. It seemed as if the way of doing banking that had characterized the previous three decades was coming to an end. The realization was, and continues to be, that a new banking business model is sorely needed. While the crisis did not affect emerging economies due to their lesser integration in global capital markets, banks in Latin America and Asia will also be affected by the broader demographic and technological changes. Many of them will be in a position to capitalize on the growth of their respective domestic market, and some may successfully expand overseas.