In the last decade, banks have operated in an environment of significant change, and to a large extent, shown an ability to transform themselves to keep up with an evolving environment. Banks will need to keep drawing on the flexibility and adaptability they have developed to meet the changes that will unfold in the year ahead.
Much of this change involves the continuation and deepening of familiar themes. Consolidation, for example, has altered the landscape in a number of markets, particularly the United States, where the 10 largest commercial banks now control 49% of the country’s banking assets, as opposed to just 29% a decade ago. Consolidation is also moving ahead in Europe, where cross-border mergers and acquisitions are creating ever-larger institutions.
“Even relatively simple ideas can have a notable impact, as LaSalle Bank found when it moved from the traditional printing of slick sales brochures, and created on-line e-brochures that can be printed in-house on demand – a move that saved $3 million in storage, printing, and time.”
Globalization remains a basic concern, with the growing importance of offshoring and the pressing need to expand into new markets – not just to fend off competition, but to take advantage of new opportunities, especially in high-growth emerging markets. With the growth of the middle class in India, for example, 22 million new customers are coming into the market each year, and by 2010, the number of middle-class consumers there will reach 250 million. Similarly, China’s increasing prosperity will create a credit-card market of some 75 million by 2010.
Along with these broader trends, there are more recent developments to consider as well, such as managing talent in the face of waves of retiring baby boomers, serving the retirement market, and coping with the growing burden of compliance challenges ranging from Sarbanes-Oxley to anti-money laundering regulations. All these factors have collectively challenged governance – how institutions can capture information for senior management and provide appropriate oversight and control.
It’s a world where banks have been reshaping themselves to succeed, and where they will need to keep doing so for the foreseeable future. As a recent report in The Economist noted, “The bigger the bank today, the more likely it is to be wildly different from what it was 10 or 20 years ago.” That observation is destined to be even more true in another decade.1 To succeed, banks need to understand these fundamental trends as they chart their strategies and, just as important, have the management ability to execute their chosen course.
In this report, the member firms of Deloitte Touche Tohmatsu look at five key issues where banks will need to focus their efforts in the coming year in order to stay ahead in an ever-more competitive environment.
The five key issues
- The ongoing cost-reduction imperative.
Growth is the order of the day, but banks need to maintain an intense focus on operating efficiency to offset declining interest margins and fee income. But today, simple belt-tightening is no longer enough. Instead, banks will need to think more fundamentally about how to drive increased operational efficiency, using offshoring, process changes, and technology to reduce costs while enhancing service and innovation.
- Offshoring 2.0.
Offshoring continues to grow as banks look for ways to lower costs. Institutions are also moving a wider variety of processes offshore to tap into an educated, skilled global workforce. While banks have achieved solid benefits from their offshoring initiatives, most banks could achieve much more, potentially tripling their cost savings by adopting best practices. Managing offshoring has now become a critical core competency for a successful bank.
- Local insights for global branching.
As banks go global, they need to develop branch strategies tailored to the new markets they enter. But each market is unique, with significant differences in the nature and role of the branch from place to place. Understanding these local differences is essential as banks shape their global branch plans.
- Hedge funds enter the fray.
Today, hedge funds have become major players in the debt markets by originating loans, buying bank debt, and fueling the growth of credit derivatives. Banks will have to factor these increased risks and opportunities into their strategies.
- Anti-money laundering regulations: Tougher – and more complicated.
Compliance with anti-money laundering (AML) regulations is growing in importance, with several high-profile enforcement actions underscoring the potential financial and reputational risks of falling short. At the same time, compliance is also becoming more complex and challenging, with regulators around the globe constantly raising the bar by adopting evermore stringent requirements and coordinating with each other in their supervision of far-flung global institutions. To reduce risks, banks can draw on advancing AML technologies and re-think their AML organization to adopt a global approach.
About the report
For nearly a decade, the member firms of Deloitte Touche Tohmatsu have released an annual Global Industry Outlook report that outlines the key challenges facing the banking sector.
The aim of the report is to draw on the thoughts and experiences of the many banking partners, principals and directors around the world in order to provide clients with a broad view of what challenges and opportunities to expect in the coming year.
The past year has seen the continuation of broad themes in the banking sector: consolidation, globalization and governance continue to influence the industry and nuance strategic decisions made at all levels within financial institutions. This report looks at some of the key issues banks will need to focus on in their ever-evolving efforts to succeed in an environment that is continually changing.
