A new wave of disruption more forceful and more pervasive than what we have witnessed in recent years will be unfolding in the coming decades. While the foundation of this disruption- economic, technological, geopolitical, environmental or demographic may remain the same. The banking sector is not an exception. Increasing demand for a digital banking experience form millennial is shifting how the whole banking industry operates.
The current state of the banking
The global banking system continues its positive streak, with profitability raising the new post-crisis levels. The US banking industry has shown modest enhancement in almost all areas and remains strong. ROC is at 18%, backed by a strong return of assets of 1.5%. The total assets were the US $ 16.5 trillion, up by 3% from the previous year. Tax cuts and higher federal funds rates were vital contributors to raised profits. Consumer borrowing has surpassed levels last seen before the financial crisis.
Expectations from 2020
In the US, unemployment has badly hit a record low and inflation is under check, but the sign of a potential downturn is looming. The yield curve inverted for the very first time in 2007. The economists from Deloitte forecast the probability of the recession in the US in the coming year at 25%, just like last year. Most other G-7 nations like Germany, Italy, Japan, and the UK, are in the same situation or worse. On the global level, the IMF has forecasted slower worldwide GDP growth of 3% in 2019 with no region unaffected.
Equally concerning is central banks’ limited repertoire of the monetary tool; rates are either at historically low levels or bordering on/in negative territory in key regions across the world. The recent move by the European Central Bank to deduct rates and reinstate quantitative easing could stir progress, but if it does not, it could bring more pain.
When it comes to the regulatory front, the world regulatory fragmentation continues to be a reality. Institutions now should contend with different needs, which are often unfinalized or under revision.
Suggestion for Banks
Anticipating the wave of disruptions over the next decade, bank leaders should reimaging the possibilities for how banking is done with big, bold ideas. By hyper scaling their transformation and actively engaging with the ecosystem, the latest partnerships and alliances may be imperatives for change.
Different powerful forces are reshaping the banking industry, bringing an imperative for transformation. Banks need to select what posture they want to adopt- to lead the change, to follow fast or to manage for the present. Whatever their selected strategy, banks need to balance execution against different priorities and have a clear sense of the posture they want to adopt. Although each of them is vital; success will come from a balanced execution across these factors and balance of important initiatives and longer-term programs, all emerging together as an integrated whole.