11 Key Watch Items for 2020
March 26, 2020
Thus far, 2020 has demonstrated a year of uncertainty with rapid change. Over our 20 years, we’ve been through similar cycles—whilst nothing like this—yet know these are 11 items to “watch” as you move into 2020.
11 Key Watch Items for 2020
1. Pressure on margins set to continue
Intense competition from digital-only neobanks with low operating costs and alternative providers of consumer credit (e.g. point of sale finance, often at 0% APR), combined with historically low interest rates, will continue to squeeze net interest margins.
2. Niche players will add to the pressure
Specialist lenders with narrow but deep expertise are well placed to exploit lucrative, higher margin markets (e.g. bridging loans, credit impaired mortgages) making it difficult for high street lenders to diversify and improve interest rate spread.
3. Margin compression will lead to further consolidation on the high street
For those incumbent players with expensive legacy infrastructure, reducing cost to serve must be a priority. Critically reviewing and re-purposing real estate assets to reflect changing consumer behaviours will be key. A smaller footprint – with more branch closures – is likely to be a commercial reality.
4. Digital re-boot required to stay competitive
Expectations have changed. The GAFA group (Google, Amazon, Facebook, Apple) has re–set consumer expectations when it comes to slick customer journeys enabled by intuitive user interfaces. Consumers now demand simple, frictionless digital banking solutions. This will drive further investment in digital channels, particularly for the traditional banks who must continuously re–invent their digital propositions to keep up with newer, digital-only players.
5. Back office processes have been left behind in the digital race
In many cases, the shift to digital is only skin deep and investment in back office processes has fallen behind. Opportunities exist to deploy Robotic Process Automation and Artificial Intelligence to automate non-value-add tasks, improve operational efficiency and reduce costs.
6. Consumers demand full functioning channel of choice
Consumers will continue to expect more capabilities in their channel of choice. No matter how good it may be, a mobile app is no more than table stakes, and the new generation of consumers is looking for rich functionality to help them manage all aspects of their personal finances under one virtual roof.
7. Marketplace banking provides a potential solution, but at a cost
The marketplace concept championed by Monzo, Starling and others offers more transparency, greater choice and lower prices across a broad range of products and services. The flip side is that it makes it much easier for consumers to switch and save money on fees (e.g. foreign exchange) that have traditionally been lucrative revenue streams for high street banks.
8. Collaborations will become more common
One way for traditional players to respond to these new challenges is to partner with third party suppliers to provide their customers with access to “trusted” products and services in exchange for referral fees and commissions to replace lost income from more conventional sources.
9. 2020 may be the year Open Banking comes of age
By partnering with fintech service providers, banks can turn the perceived threat of data sharing into an opportunity to create highly relevant and personalised products for their customers, increasing loyalty and retention.
10. Lenders must look to alternative data sources to stay competitive
Almost 6m people in the UK have no (or a thin) credit file, making it difficult and/or expensive for them to borrow. This problem is likely to increase as Generation Z (born 1997-2012) joins the workforce and tries to access credit for the first time. Forward-thinking lenders can use this opportunity to gain a competitive advantage by leveraging the power of non-traditional data in their credit scorecards.
11. Banks need different skills to meet new challenges
The nature of retail banking has changed dramatically and will continue to evolve. To remain agile and adaptable, organisations must examine – and re-balance – their resource profile to ensure they have the skills required to succeed in the digital era, e.g. data analytics (traditional & non-traditional data sources), digital marketing, IT and innovation.
Our watch list can be summarised into three themes to improve your business: expense pressures, digital advancement and collaboration. If you are experiencing challenges in any of these areas, give us a call. Bridgeforce helps our clients build on core strengths while addressing unprecedented levels of change and uncertainty. If you would like to find out more about our services or discuss how we can support you, please contact us