Especially at low interest rates, consumers demand digital offerings of banking products, professionals need access to data wherever they are, cybercrime is still on the rise, the challenges facing banks are complex and banks. The market in which we do business is changing. For many traditional banks, these challenges are made difficult by the historical lack of investment in technology, except when answering regulatory questions.
Despite this situation, European banks have demonstrated resilience in the face of recession, primarily due to investment banks and asset management outperformances, as well as simplification through divestitures. They are increasingly investing in strategic technology and reorganizing traditional activities to face these new challenges.
After the pandemic, the success of these banks depends on the effectiveness of the solution in overcoming these structural challenges. Traditional banks need to continue investing in digital projects to streamline operations and meet customer needs.
By 2022, banks will focus their investment on nine key areas.
1. Loans are no longer the only source of income!
European banks have seen margins shrink due to low interest rates and low lending demand. This forces them to seek new ways to generate more income. Among the solutions are investing in emerging markets, increasing banking fees and exploring new product lines.
Some retail banks are starting to offer more money management advice and are about to enter wealth management. Some companies, such as Lydia and Boursorama, are beginning to explore subscription models. Premium options for individuals (Lydia Noir and Boursorama Metal offers) offer special benefits such as priority customer service, immediate loans and free international money transfers.
Moving away from legacy IT systems, more and more banks will restructure their businesses and business models. Therefore, you will be able to maximize efficiency and take advantage of new technologies that are essential to maintaining profitability.
2. Reduce costs through investment in cloud and technology
Banks will focus on reducing the cost-to-income ratio in 2022 due to the slow recovery. This will be affected by branch closures and downsizing, but the biggest opportunity is in redesigning the operating model.
For example, Google will invest $ 1 billion in exchange company CME Group, and instead, the group will shift all markets to Google’s cloud services to increase efficiency and optimize costs. Some banks, such as Wells Fargo, have implemented multi-cloud strategies (in this case Microsoft and Google) to help them choose the best platform for their particular process. Therefore, more banks will focus on financial operations in the cloud (FinOps) to ensure cost optimization and management of these new services.
3. Increased investment in cyber security
Cybercrime has evolved rapidly during the pandemic, especially as consumers demand communication via social media, chat, or live messaging. Today, vulnerable profiles have doubled, an evolution that has helped accelerate the war in Ukraine. In the financial sector, banks are becoming more vulnerable to attacks by integrating third-party platforms into basic banking services.
Therefore, the cybercrime prevention market will grow fast in the coming years. By 2026, the regulated technology market is worth $ 33.1 billion as organizations strive to simplify the compliance process and minimize risk, according to a FnF Research study. While retail banks have long been able to deal with card fraud, this new wave of cybercrime is setting new risk parameters and increasing exposure to GDPR fines. Banks also need to prepare for a 2022 hacktivist attack.
4. Growth of digital platforms and new business models
As banks digitize back-end and front-end processes, they are beginning to use more third-party services and technologies. Some banks have already begun to offer banking services (BaaS) as a service.
With BaaS, banks are partnering with platforms and companies outside the industry to enter a wider market. They also want to provide banking services and the type of mobile payments consumers want. For example, Amazon offers credit cards that offer users additional discounts on Amazon products. Major retail chains such as Ikea and Walmart are also beginning to get involved in BaaS.
Banks are clearly becoming more and more open to partnerships with FinTech, which raises the issue of additional risk, especially with respect to shared data.
5. Increased pressure from the regulator
The DORA regulation recently proposed by the European Commission is one example. As the law imposes a regulatory framework on the resilience of digital operations in the financial sector, banks must adhere to the global risk framework and upgrade their ICT risk requirements.
Banks use AI to proactively manage risk and keep track of their position before submitting their annual reports to regulatory agencies. Investing in advanced analytics, artificial intelligence and machine learning helps banks increase agility, reduce costs and improve technology, operations and reporting capabilities.
6. Investing in ESG
In the context of COP26, banks, like any other organization, are under pressure to promise to reduce their impact on the environment, society and governance.
For example, some European banks are already looking for ways to relate executive compensation to ESG goals. In November 2021, Crédit Agricole CIB (CA-CIB) launched a socially structured product that enables investors to contribute to the financing of social projects. Therefore, in 2022, current regulations will be tightened and revised to pressure banks to improve ESG reporting.
7. Return to the office in the post-pandemic world
Pandemics have brought about rapid changes in the workplace, and traditional banks have struggled to keep pace with digital competitors, especially in hybrid work environments. Banks need to change to retain and retain the best talent (and thus to remain competitive) by providing greater flexibility to their employees.
Working from home has traditionally been seen as a perk for executives and managers, but as the ability to work from home becomes standard, more and more companies are offering these opportunities to office workers of all levels. increase. Therefore, investment in collaborative technology that enhances the customer and employee experience will increase in 2022.
8. M & A will continue, but the pace will slow down
We have seen some of the highest levels of integration we have seen over the years. Interest rates are low and money is cheap to raise money for acquisitions. Banks are also profiting from acquiring fintechs and startups that they use to accelerate digitalization.
In the short term, more and more companies are considering joint ventures and partnerships to stimulate expansion strategies.
Merger and acquisition activities will continue, but probably not at a rapid pace in recent years. Investors especially want to see the ROI of current and past investments.
9. Service line simplification
Banks aim to simplify product and service catalogs, reduce complexity, and integrate offerings. Credit Suisse is focused on wealth management, away from basic banking and brokerage firms. This means that you are abandoning certain low-profitable products and offers (such as current accounts and debit cards) and focusing on high-profitable offers (such as credit cards, loans, and international money transfers). .. This evolution reduces the complexity of existing systems used to support these services and increases bank agility and flexibility.
This is a time of real change for banks that are streamlining services, enhancing digital capabilities, refocusing their investment in technology and reforming themselves. Banking conditions can vary significantly by the end of 2022.