As anyone who was making forecasts this time last year now knows, it’s a risky endeavor. But there’s a good chance that 2021 will be remembered as the year we picked ourselves up after COVID-19, hopefully learning something in the process.
Banks in 2020 were forced to make years’ worth of technology and business model changes in a matter of months. Demand for both digital solutions and secure work-from-home systems exploded. The pandemic has stretched the entire industry like an elastic band, and there is an understandable desire to let the band relax and go back to “normal” as soon as conditions permit.
But when you stretch an elastic band, you also create potential energy. In a slingshot, that energy can be transformed into rapid forward motion. For banks, that took the form of a sustained burst of innovation and improvisation. The question they face now, however, is where to let the elastic relax and ease the strain of 2020, and where the experience and pent-up energy of last year can be used to propel the institution forward.
Alan McIntyre, our chief banking slingshot expert, has been tracking the debates and decisions taking place within the industry right now on what to do with this stretched elastic. As he does every year at this time, he once again presents the 10 key trends most likely to affect banking over the next 12 months.
1. Go big and stay home
The ‘winner takes all’ phenomenon is now emerging in retail banking. As the big get bigger, ‘too small to succeed’ will replace ‘too big to fail.’
2. The neo-normal
The best traditional banks and the best neobanks will win customers, while weaker incumbents and undifferentiated challengers will struggle.
3. Twilight of the banking apps
As banking completes its migration from street corners to screens, competition in retail and commercial will heat up—and squeeze out standalone apps.
4. Radical transparency
2021 will be tough for traditional retail strategies. Some banks will lean into radically transparent products to create a more compelling pitch.
5. Getting the credit
As COVID-linked losses work their way through P&Ls, smart credit quality management utilizing micro-segmentation will become a winning differentiator.
6. Cash is not king
The pandemic will slingshot digital payments in countries racing to become cashless. But in most markets, nixing cash will remain a long-term project.
7. A green inflexion point
2021 will be an inflection point in sustainable lending, as central banks and regulators recognize the macroeconomic consequences of climate change.
8. The uncertain world of US regulations
The impact of the US elections on our industry will become clear in 2021. But many changes remain uncertain, like the fate of Open Banking.
9. The rise of the digital regulator
If 2020 was an accelerator for the banking industry, 2021 could be similar for regulators. Expect a new type of regulator to rise.
10. No more fluffy clouds
Cloud computing is becoming a spectrum—a sky filled with cirrus rather than isolated cumulus clouds. Siloed thinking will become more dangerous.
We would love to hear your thoughts on the year ahead for banking. If you would like to talk through the trends presented above, please contact us.
Author: Alan McIntyre, Senior Managing Director – Banking. Alan manages overall banking vision and strategy, investment priorities, client-offering developments and partnership networks.