Report: Technology Will Be the Biggest Driver of Change in Banking

Senior bank executives across the world view technology as the biggest cause of transformation to the industry in the near future, according to a PwC study released earlier this month called “Retail Banking 2020: Evolution or Revolution.” Technological advances was the most popular choice among the executives in the survey as one of the global trends that will disrupt banking in the next five years, with 86% of respondents citing it as one of their top three trends.

Nearly all of the executives in the study said that the industry will see significant transformation in the next few years, with 96% of respondents expecting such transformation. And the respondents almost universally agreed that the ability to innovate will be a key differentiator as that transformation occurs, with 97% of them calling innovation a critical driver of growth in the future.

[For More On Innovation In Banking: Four Bank Tech Predictions For 2014]

But most of the respondents said they were not confident about their preparedness for a technology-driven industry transformation -- only 20% called their organizations prepared for transformation.

Compliance was cited as the biggest challenge for U.S. banks (47%), and is straining banks’ abilities to position themselves for growth and innovation, says John Garvey, PwC’s U.S. Banking and Capital Markets leader. “The challenge is to create some time, and eventually resources, to focus on something other than the immediate issues, which are mostly being driven by regulatory change and punishment for past sins,” Garvey shared via email. Regulatory compliance was cited as the biggest investment priority by the majority (56%) of U.S. respondents.

With compliance concerns hindering the ability to innovate among U.S. banks, non-traditional competitors were also considered a bigger concern among U.S. respondents in the survey. While 55% of overseas banks said non-traditional competitors were a significant threat, that number rose to 71% among U.S. respondents.

“In the U.S. the new entrants are mostly going after existing clients of the banks. In emerging markets they are targeting mostly the unbanked. Also in emerging markets… the regulatory cost (vs. unregulated) is less than in developed markets,” Garvey noted.

The survey found a strong correlation between innovate and growth optimism, with those banks that considered themselves innovative predicting they would grow by more than 60% over the next five years, while the least innovative institutions predicted growth of 21%.

“In developed markets, very few of the institutions are innovative and the regulatory situation over the last 5 plus years has emphasized this,” Garvey. “Looking ahead to the future, the most innovative banks are focusing more on acquiring capabilities for innovation from the outside (like the recent acquisition of simple by BBVA).”

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More than 90% of the respondents in the survey agreed on six key priorities for growth in the next few years: developing a customer-centric model, executing a multi-channel strategy and transforming the branch, simplifying business and operating models, unleashing the power of data and analytics for risk management and business growth, nurturing innovation and agility, and learning to manage risk and capital proactively.

The report also included five forecasts for the banking industry for 2020 from PwC. The firm predicted that banking will be dominated by national and regional institutions as regulatory change makes it more costly to operate cross-border, and also said that banks will compete based on their banking licenses, technology and marketing budgets rather than the geographical footprints of their branch networks. The survey also said that banks will have to learn to produce new products at a lower cost, and nearly every product will have to be profitable on its own, and that wealth management will grow in importance to equal basic deposits as a baseline service.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio