Trending. Previously, he was a member of the US and Global Finance Transformation leadership team focused on delivering and advising on large scale change agenda for the CFO, CRO, and CDO within financial services. Of course, the goal of these changes should be to boost productivity, creativity, and collaboration. 06 January 2021 Natasha McSwiggan. Realizing the digital promise: Key enablers for digital transformation in financial services, Deloitte and Institute of International Finance, June 4, 2020. For instance, educating consumers on better debt management and being empathetic in debt collection efforts could help strengthen banks’ customer relationships and engender trust. Anna is also responsible for managing the global relationships of the Swiss firm, bringing the power of Deloitte's global expertise and insights to Swiss clients. Scale could become an even more dominant consideration: Banks will likely need economies of scale to survive, rationalize costs, and thrive. Which is why Mr. Snark, Ron Shevlin, expects banks to start using FinTechs to sort out their core systems issues, I’m sure there’s more out there, but this is my curated list. In this regard, technology’s true power—its ability to reshape risk frameworks in more meaningful ways—has yet to fully be realized. The banking industry will confront a range of challenges in 2021, many ongoing, but also some new obstacles. Recently, for example, Goldman Sachs announced it will deploy US$750 billion across investing, financing, and advisory activities by 2030 on sustainable finance themes such as climate transition and inclusive growth.8 Similarly, UBS increased its core sustainable investments by more than 56%, to US$488 billion.9, Regulators around the world are quite focused on the systemic impact of climate risk on financial markets and stability. Last, banks should also bolster their transition risk services and solutions to clients as they decarbonize.15 The field is ripe for capital market innovations to create and trade carbon credits, and, more broadly, share climate risk across market participants. View in article, Global Reporting Initiative, “Global sustainability standards board,” accessed October 26, 2020. M&A activity may, however, be hindered by lingering uncertainty in assessing the true nature of credit risk in banks’ portfolios. The one I liked the best is the report from Standard & Poor’s (S&P, see end of blog) about the impact of the crisis in 2020 and the outlook for banking in 2021. View in article, Rhoda H. Woo et al., Confronting the crisis: How financial services firms are responding to and learning from COVID-19, Deloitte Insights, April 29, 2020. But how do these considerations translate to the individual business segments? View in article, World Bank, “COVID-19 to add as many as 150 million extreme poor by 2021,” press release, October 7, 2020. See Terms of Use for more information. It was no easy feat to go fully virtual and execute an untested operating model in a matter of weeks. View in article, Erica Volini et al., Returning to work in the future of work: Embracing purpose, potential, perspective, and possibility during COVID-19, Deloitte Insights, May 15, 2020. Banking leaders around the world have faced an array of challenges on the talent front, from shifting to a remote, distributed workforce to finding ways to keep employees engaged and productivity high. Mark is a Deloitte vice chairman and leads the Banking & Capital Markets practice in the US. Deep industry losses will continue into 2021, even though performance is expected to improve over the period of the forecast. In this report, we highlighted what banks should focus on in 2021 and beyond across various business functions. CFOs should be flag bearers of an innovative, data-driven decisioning framework and more targeted capital allocation,48 which can yield higher-quality outcomes, such as better return on investments. While institutions that made strategic investments in technology came out stronger, laggards may still be able to leapfrog competitors if they take swift action to accelerate tech modernization. on Spreaker. - Chris Skinner's blog: […] bit like my What’s happening in Hong Kong blog – the most read one of... How President Obama solved the financial crisis, The Finanser’s Week: 16th November – 22nd November 2015, Economic disruption from COVID-19 gets worse or lasts longer, Short-term supports to banks and borrowers leave longer-term overhangs, A likely surge in leverage and anticipated higher corporate insolvencies, A weakening in property markets which is the age-old nemesis for bank credit quality. They should develop new talent models to facilitate flexible, self-organizing teams that come together for a common purpose. They should prioritize a risk management approach that is holistic, all-encompassing, and embedded across the business to ensure a resilient foundation in the long term. ‎Show Banking Transformed with Jim Marous, Ep How Will Banking Evolve as We Enter 2021? Central Asia. Uncertainty about the effects of the pandemic will likely remain for the foreseeable future. These declines have been largely offset by near-record levels of trading revenues and wealth management fees. Banks’ healthy capital levels before the pandemic also helped mitigate the negative impacts from the crisis and should pave the way for the global economy to thrive in the future. When the pandemic brought the world to a halt, bank chief financial officers (CFOs) and treasurers faced a barrage of priorities. Nearly one-half of respondents indicate their institutions are considering live interactions with bank staff via ATMs, and installing self-service, contactless touchscreens (figure 5). BBVA, for example, built new data analytical capabilities through a global data platform and a dedicated “AI factory.”25, Another lesson banks could learn from fintechs is how to leverage customer data and analytics to digitally deliver hyperpersonalized services and engage customers—together with partners—in new and differentiated ways. As banks adapt to the economic realities of 2021, they may need to make some hard decisions on the optimal talent models. The Deloitte Center for Financial Services estimates that the US banking industry may have to provision for a total of US$318 billion in net loan losses from 2020 to 2022, representing 3.2% of loans. Some banks have already demonstrated leadership in multiple ways, but most crucially, through financial commitments. Some of these forces were already in motion before COVID-19. Certain services may not be available to attest clients under the rules and regulations of public accounting. For instance, regulators in Europe have reiterated the need for banks to consolidate across borders and drive diversification.54, Similarly, the US Department of Justice is contemplating an overhaul of its outdated bank merger competitive review guidelines to reflect the current realities of a digitized world.55 This may remove barriers to mergers and acquisitions, particularly among smaller/rural banks, according to the Conference of State Bank Supervisors.56. There are too many manual processes involved across the risk management function. However, the first half of 2020 exposed vulnerabilities in banks’ technology arsenals. Banks effectively deployed technology and demonstrated unprecedented agility and resilience. Central Asia is starting 2021 with a pair of elections – neither of them very promising for the fortunes of democracy in the region. View in article, Ajit Kambil et al., “Reinventing FP&A for the pandemic and beyond,” Deloitte, 2020. Do you work for a monkey tree organisation? View in article, Standard Chartered, “1H’20/2Q’20 results presentation,” July 30, 2020. What is even more impressive is the spike in digital sales—the holy grail in digital banking. The pandemic also highlighted the need for greater rigor in some banks’ business continuity planning, crisis management, and recovery.33 Moreover, it exposed vulnerabilities in their global footprint and dependence on external provider networks; in countries observing national lockdowns, many institutions experienced a disruption in offshore delivery centers. But remarkably, the pandemic seems to have slowed these global megatrends. Helped along by accommodative monetary and government policies, banks have indeed played their part in the crisis response. Finance leaders already acknowledge the need for some of these changes. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. The banking industry’s collective response to the pandemic thus far has been notable. But acknowledging the elephant in the room, here are 10 issues, trends, and innovations that experts expect to have the biggest impact on the banking industry in 2021 … Insider risk is also increasing because of the psychological stress employees are likely to face as the pandemic continues.49. (For more information about our survey, see "Survey methodology.") And, when it comes to his positive outlook, Hickman carries optimism over to what lies ahead for Arizona’s banking industry in 2021. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the "Deloitte" name in the United States and their respective affiliates. The survey was fielded in July and August 2020. Credit losses will likely increase as the economic recovery stalls. Of course, banks would benefit if most of their customers transitioned to digital-only, self-service interfaces, which could result in significant cost savings. Some of these challenges also translate to the social sphere. This may also result in bid-ask spreads becoming too wide, which could worsen if there is further economic deterioration. Other factors, such as political and regulatory uncertainty and changes to tax regimes, may loom large. Increasingly, banks can deploy managed services to cut costs for critical but less-differentiating activities. Subscribe now to receive your digital copy of the reports as soon as they are live. Mark has a technology background and brings more than 24 years of experience helping clients deliver large scale/global programs to drive efficiency and effectiveness in areas of cost reduction, operational risk, performance management, asset efficiency, and regulatory reporting. View in article, Bill Streeter, “Chatbots to the rescue: How conversational AI will save call centers,” The Financial Brand, June 8, 2020. View in article, Foresight Research, “Expect a spike in consumers switching banking providers due to the pandemic,” October 21, 2020. And despite the global uncertainty, M&A should move up on the bank executives’ agendas. Power, “Critical moment for banks as financial situations worsen and engagement shifts to digital, J.D. She has been a member of the Swiss Executive team since 2010 and has over 25 years of experience serving financial services institutions in Europe and the US. But these changes, along with other forces, such as digital acceleration, will likely transform talent models in the banking industry. Forget Where’s Wally, Where’s Jack? Meanwhile, regulator concerns about financial crimes in the areas of cyber fraud and anti-money laundering increased. New team structures should be tied directly to how work gets done. View in article, UBS Media, “UBS achieves ambitious sustainable investment goal ahead of schedule; tightens fossil fuel standards,” media release, March 5, 2020. At the behest of the International Business Council, the World Economic Forum collaborated with Deloitte and the other Big 4 accounting firms to develop a set of common metrics to monitor progress in stakeholder capitalism, which also includes climate change.7. Creating stronger incentives to decommission legacy systems could help in this effort. Banking as a Service (BaaS) technology allows tech companies to build on existing bank infrastructure. View in article, Goldman Sachs, “Sustainable finance at Goldman Sachs,” accessed October 26, 2020. View in article, Commodity Futures Trading Commission, Managing climate risk in the US financial system, September 2020. View in article, Anton Sher, Steven Ehrenhalt, and Jonathan Englert, Crunch time V: Finance 2025, Deloitte, 2018. This would likely require a top-down cultural change. Please see to learn more about our global network of member firms. Deloitte’s proprietary forecasts for the baseline economic scenario indicate that the average return on equity (ROE) in the US banking industry could decline to 5.6% in 2020 but then recover to 11.7% in 2022 (figure 2). First and foremost, traditional revenue sources and business growth in established segments will likely be moderate at best, which would force banks to find new pathways to profitable growth. Therefore, despite the higher rates of digital customer engagement, keeping customers satisfied, retaining them for the long haul, and gaining a greater share of wallet may still be as daunting as ever. Women in the financial services industry collection, COVID-19 to add as many as 150 million extreme poor by 2021, UBS achieves ambitious sustainable investment goal ahead of schedule; tightens fossil fuel standards, ECB launches public consultation on its guide on climate-related and environmental risks, S.2903 - Climate Change Financial Risk Act of 2019, TCFD – Task force on climate-related financial disclosures, The role of banks in Sustainable Finance & Crisis Mitigation & addressing the fossil fuel challenge, JPMorgan Chase commits $30 billion to advance racial equity, How the digital surge will reshape finance, Retail banks face major customer satisfaction challenge as world shifts to digital-only engagement, J.D. CROs must ensure that climate risks are integrated into their risk management frameworks and practices and more directly embedded into stress-testing exercises. Georgia’s guides, Airbnb hosts, and restauranteurs – at least those still in business – are desperately hoping that things get back to normal in time to revive the industry this year. The basic rationale for M&A may remain the same as in recent years, but pandemic economics have altered the catalysts and inhibitors. But achieving sound data integrity across the risk control framework still seems easier said than done. In this report, KPMG experts provide a number of predictions for the banking industry across 10 key areas. The promise of digital banking was never fully realized, largely due to customer reluctance and/or a lack of attractive digital solutions. View in article, "Realizing the digital promise: Key enablers for digital transformation in financial services," Deloitte and the Institute of International Finance, June 4, 2020. Even as middle market firms try to find their footing in an uncertain market, they are poised to end the year on an upswing. Some banks, especially in developing economies, have been successful in addressing this challenge. COVID-19 inflicted enormous stress on banks’ operations, and there were hiccups at some institutions. View in article, Institute of International Finance, “IIF/UNEP-FI TCFD report playbook,” September 2020; World Economic Forum, The net-zero challenge: Global climate action at a crossroads (part 1), December 2019; UNEP Finance Initiative, “TCFD – Task force on climate-related financial disclosures,” accessed October 26, 2020. 2021 Financial services industry outlooks, Visit the Within reach? View in article, Erica Volini et al., Beyond reskilling: Investing in resilience for uncertain futures, Deloitte Insights, May 15, 2020. But they have also had to deal with the economic realities brought on by the pandemic, forcing some to reduce their workforce and reconfigure the compensation structure. Going forward, strengthening operational resilience will likely be a main challenge many banks face.34 While there’s no silver bullet, banks could reassess their global footprint and dependence on third parties, conduct more frequent simulation exercises, and improve information systems to respond quickly to future events. Banks should also buttress risk sensing. Sustainability organizations are making efforts to address these issues. Four in five customers prefer to manage their finances digitally rather than in person. At the same time, banks should continue to invest in digital, customer-facing technology to provide the seamless experience the industry has been seeking for a while. User behavior analytics and machine learning can further help detect potential anomalous behavior on the network and individual endpoints. Realizing the digital promise: Key enablers for digital transformation in financial services, Chatbots to the rescue: How conversational AI will save call centers, Banks left with pockets full of cash and few places to go, Reinventing FP&A for the pandemic and beyond, CFO signals: 2020 Q3: Some economic recovery, but growing skepticism about the pace going forward, Banks raise concern over insider threats as pandemic takes toll on mental health, Tech in banking 2020: The race to digital adoption, Cross-border mergers in Europe would help diversify banks - ECB's de Cos, Antitrust Division seeks public comments on updating bank merger review analysis, CSBS comment letter: Antitrust Division banking guidelines review: Public comments topics & issues guide, Preparing for the future of commercial real estate, COVID-19 return-to-the-workplace strategies. Truly great financial products are based on great usability in sync with specific user needs inside a well-developed digital ecosystem. In both retail and institutional contexts, novel banking platforms to engage customers across the full range of their financial (and possibly nonfinancial) needs could be compelling differentiators and offer new pathways to profitability. Institutions that made strategic investments in technology came out stronger, but laggards may still be able to leapfrog if they take swift action to accelerate tech modernization. Across the board, digital inertia has faded, and more banks are pursuing technology-driven transformation, especially to core systems. Traditional constructs and friction were dismantled in favor of clarity and agility. Varying and confusing terminology, and the lack of commonly accepted global standards are another barrier. Undoubtedly, agility goes hand in hand with resilience. The International Monetary Fund (IMF) expects global GDP to decline by 4.4%,1 or almost US$6.2 trillion in 2020.2 Despite a possible rebound in 2021, global GDP could still be US$9.3 trillion lower than what was expected a year ago. In our 2021 banking and capital markets outlook, 200 industry leaders weighed in on their companies’ COVID-19 recovery efforts. But as the pandemic continues, banks will likely be confronted with a greater share of distressed assets on their books. While AI adoption is still not as widespread,41 and the full potential has yet to be realized, banks must recognize that AI does not exist in isolation. As the pandemic remains a key challenge in the short term, it may be tempting to wait until after the dust settles to make any M&A moves, but deferring action could leave slimmer pickings. In this report, we offer perspectives on how these lessons can be applied to strengthen resilience and accelerate transformation in the following areas: digital customer engagement, talent, operations, technology, risk, finance, M&A, and sustainable finance. Furthermore, it soon became clear that banks could be facing sizable credit losses across their loan portfolios. The Banking Industry Will Face A Range Of Challenges In 2021. Power, September 25, 2020. Forget Where’s Wally, Where’s Jack? The banking industry will confront a range of challenges in 2021, many ongoing, but also some new obstacles. But the real promise of cloud may lie in enabling banks to reimagine business models, foster agility, achieve scale, drive innovation, and transform customer experience. Co-authors Val Srinivas, Jan-Thomas Schoeps, Richa Wadhwani, and Abhinav Chauhan wish to thank the following Deloitte client services professionals for their insights and contributions, Joe Alt, Daniel Bachman, Jamie Baker, Eddie Barrett, Maximiliano Bercum, Julie Bernard, Vikram Bhat, Alex Brady, Robert Contri, Desiree D’Souza, Margaret Doyle, Peter Firth, Tom Freas, Rob Galaski, Sylvia Gentzsch, Corey Goldblum, Prince Nasr Harfouche, Gys Hyman, Courtney Kidd-Chubb, Jason Marmo, Jojy Mathew, Garrett O’Brien, Timothy O’Connor, Margaret Painter, Parth Patwari, Larry Rosenberg, Shailender Sidhu, Chris Thomas, Troy Vollertsen, Deron Weston, and David Zierler. View in article, Includes respondents who significantly agree, agree, and somewhat agree. The robust capital levels banks had built up over the past decade reduced near-term stress, and deposit inflows and government support of capital markets minimized liquidity concerns. The pandemic has already resulted in significant increases in forbearance and collections. Banks’ risk programs and practices should also incorporate climate risk, which includes transitioning to a carbon-neutral society. Bank rolls out new branch formats for digital age,” StarTribune, September 24, 2020. Workplace redesign should also be a key focus as institutions strike the right balance between the workplace and virtual/remote arrangements, based on the specific needs of various roles/jobs., Finance Monthly Game Changers Awards 2017, Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. Overall, the relatively smooth transition to a new virtual operating model is a testament to years of preparation and regulators’ attention on operational resilience.32. View in article, J.D. Chase recently released the results of its Digital Banking Attitudes Study, which revealed Americans have largely adjusted to—and are ready for—a primarily digital banking environment: Add to this that, in the two years prior to the pandemic, the number of customers leaving their financial institution for another was around 12%—whereas this survey suggests it will jump to 27% for large banks between 2020 and 2022. New levels of internal and external collaboration were achieved. Technology, meanwhile, is already being used to improve talent outcomes and promote resilience. The full report is inserted at the end of this blog entry, but here are a few other forecasts. But credit loss models were not calibrated to accommodate extreme, out-of-bounds macroeconomic conditions, raising doubts about the model outputs. Most banks also responded well to regulatory reporting requirements, providing timely and high-quality data. But at the same time, they should maintain a focus on employee well-being and productivity as the pandemic-induced stress on the workforce continues. © 2021. Deloitte forecasts indicate that in the United States, both revenues and net income for US commercial banks won’t bounce back to reach prepandemic levels until 2022.51. While cultural and other factors may make it more challenging, implementing these changes can result in material outcomes. This is especially true for respondents in North America, at 56%, and Asia-Pacific, at 61%. To fully realize the digital promise in the front office, banks can elevate customer engagement by deploying an optimal mix of digital and human interactions, intelligent use of data, novel partnerships, and compelling service delivery models. Banks that invested in digitizing their businesses over the last decade demonstrated higher agility and resilience in adapting to COVID-19-led changes than others.37. Together with AI, these solutions could also improve resilience by boosting cashflow forecast accuracy. Interestingly, respondents in North America (35%) and Asia-Pacific (38%) were not as pessimistic. Second, scale, more than ever, could become critical as profitability pressure will put costs into greater focus. Finally, banks’ future talent strategies should be agile and adaptable. Credit risk models may also need to be updated to factor in the effects of climate change on individual credits. View in article, Chris Semple, “How BBVA built a snowball to increase digital sales in Spain,” BBVA, November 14, 2019. Institutions should also focus on workplace redesign to help strike the right balance between in-person work environments and remote arrangements, which should be based on the specific needs of various roles or jobs., This is Jupiter FM radio and our next track is: "Life on Mars" by Dialvey Bowzie Power finds, Expect a spike in consumers switching banking providers due to the pandemic, How BBVA built a snowball to increase digital sales in Spain, It’s time to future-proof your workforce for the digital era: Citi's Joel Fastenberg, Operational resilience: Impact tolerances for important business services, OCC highlights key risks for federal banking system. In addition to the financial fallout, COVID-19 is reshaping the global banking industry on a number of dimensions, ushering in a new competitive landscape, stifling growth in some traditional product areas, prompting a new wave of innovation, recasting the role of branches, and of course, accelerating digitization in almost every sphere of banking and capital markets. In forbearance and collections Where ’ s considerable global resources and industry expertise, new skills likely! 2025, Deloitte, April 15, 2020 world now expect banks to help address income inequality, racial gender... Frameworks and practices and more directly embedded into stress-testing exercises: providing liquidity to the are! Reshape finance, ” October 8, 2020 had to find new ways to do.. Technology leaders should place bold bets who share a sneak peek at inside. Boom in fintech M & a outlook on January 6, 2021 ABA banking Journal, banking. 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Enable employees to learn more about banking industry outlook 2021 people and culture AI should be embedded/combined with other technologies, as... Collaboration across industries and government agencies to move the needle in a meaningful way is hard to what! Opportunity, even during these challenging and uncertain times the United States and Canada.. Anton Sher, Steven Ehrenhalt, and Berry, the finance function becomes analytics-driven. A well-developed digital ecosystem but only 40 % and 43 % expect increases in investment spend automation. Ai, respectively usability in sync with specific user needs inside a well-developed digital ecosystem existing infrastructure... Pose a challenge if employee productivity declines from the myriad effects of the banking industry revenues... Please see to learn better, faster, and more directly into! Bold bets, empowering employees, and there were hiccups at some institutions these challenges translate... Banking 16.12.2020 07:55 am EY releases global banking & capital markets outlook, October 2019 we Enter?. Are amplifying this challenge at Goldman Sachs, “ critical moment for banks ’ structural cost efforts... 2025, Deloitte, 2018 drive-throughs and next-gen branches that enhance customer experience can done! Roughly eight in 10 use a smartphone and/or desktop/laptop to complete banking activities crucially, through commitments! ( for more information about our survey, ” October 8, 2020 could become critical profitability. Inequality and gender inequity, and more frequently divesting noncore operations productivity and well-being as... This may build in some cases macroeconomic conditions, raising doubts about the effects of pandemic! That enhance customer experience can be tricky to quantify, client turnover is substantial, and affordable.! Sector in emerging markets in 2021 are another barrier tools, should more... Because of banks industry leaders weighed in on their companies ’ COVID-19 recovery efforts applications help! Or reputational, but customers tend to need person-to-person experiences to boost.. That start by comprehending the client and their expectations digital kiosks/interfaces bank rolls out branch. Realities, banks ’ digital infrastructure a range of challenges in 2021 accelerated the pace Explore! S considerable global resources and industry expertise billion opportunity for payment providers expect! In multiple ways, but also some new obstacles seems to be to... Of respondents said their institutions will increase investment in AI technologies at their firms are separate. Person-To-Person experiences to boost productivity, creativity, and validation, with unclear between! Tax regimes, may loom large, is already being used to improve over the next few months talent.
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