Becoming «digital» will be an imperative key success factor in the next decade. This requires more than just staying up to date with current technological trends. We believe that focusing on a digital culture and ways of working will lead to more innovation and agility. Improving a bank’s digital maturity increases significantly the quality of interaction with its customers. This will help the bank to become more connected with its customers at every touchpoint of their journey and enable it to be more responsive to shifts in customer preferences. This goes hand in hand with the potential to increase business volumes and eventually will lead to greater profitability levels.

Deloitte's latest Digital Banking Maturity Study shows, that «digital champions» consistently outperform their market peers at elementary KPI levels. As such, they achieve higher RoE and RoA levels [plus 1.9%-points and plus 0.2%-points respectively] as well as lower C/I ratios [minus 4.0% points] when compared to their market peers.

This implies that a «digital mind shift» is required towards embedding a start-up culture characterised by entrepreneurship, design thinking, a focus on innovation, and customer centricity at all levels, in order to succeed in a dynamic all-digital environment.

Consumer preferences, technological advances and regulatory requirements often change faster than a bank's business plans can be adjusted. The successful retail bank of the future replaces the robust profit driven ten-year strategy with a ten-year purpose-driven vision. Instead of asking departments to translate the corporate strategy into separate sub-plans within their respective silos, adaptable organisations enable their value streams - flexible networks of teams and talented individuals - to make decisions in alignment to the organisation’s vision. Organisations that enable decisions to be made at the lowest level possible, in alignment with the business strategy, turn ambiguity into clarity and can outperform their competitors. This requires an organisational shift, starting at the top, as leaders empower, entrust, and give responsibility to their people.

The shift towards more decentralised decision making requires a robust talent management system, with individualised career advancement and a focus on continuous upskilling. Leaders are at the forefront of creating a workplace of high-performance standards mixed with psychological safety and reinforced by simple guardrails instead of detailed rules and procedures. Instead of managing the workload, leaders must shift their attention to the bigger organisational challenges of becoming adaptable. For retail banks, this revolves around balancing flexibility and opportunism with structure and compliance - enabling teams to make the best decisions while ensuring they comply in this highly regulated market. How retail banks navigate this problem will determine the banking landscape of 2030.

In a retail banking sector that is becoming more cashless, data driven and empowered by platforms, customers engage more digitally with their respective banking service providers. In recent years, we have seen a reduction of about a third in the number of customers using branch services – obviously, a number amplified by the pandemic. Unsurprisingly, the use of digital and mobile banking services leads to strong rates of growth year-on-year. Transactions executed via digital and mobile banking channels provide a 95% cost advantage over transactions executed in branches. However, two key questions remain for banks. What does this mean for the quality and strength of the client relationship, and what is to be done with the existing branch network?

We would advise incumbent Swiss retail banks with a dense branch network across the country to question any future investments in the network given the future of a post-pandemic world. In this regard, future investments should be tested against the following four key dimensions.

We expect that in a post-pandemic environment:

1. «Interaction and engagement» - Embrace the new social norms and behaviours
   To have a lasting effect on how and why we will interact physically. From service standards and protocols to digital interactivity and hygiene concepts, banks will need to tackle the new expectations of customers in their service design.
2. «Purpose and support» - Continue to support your customers
   To have a long-lasting impact on the financial well-being of customers. The future branch needs to provide appropriate support that goes beyond the future end-to-end banking experience. Staff need to be equipped with the respective tools to handle the wide range of occurring needs.
3. «Technology and equipment» - Leverage smart technology and digital intelligence
   To increase the adoption of new technologies, and an impetus to leverage data, analytics and the internet of things. As we move to a «digital first» branch development it is imperative to consider the application of new technologies to help optimise customer and business value throughout an in-branch customer visit.
4. «People and story» - Celebrate your history and the customers who made it
   To challenge the status quo and to entice customers to explore extensively new, purely digital service offerings. Incumbents need to engage with their established customer base to their own advantage – they have the opportunity to restore and reinvent the «customer community» through a physical presence and human connection that neo-banks can't offer.

Considering the retail banking sector’s move to become more digital-savvy and the overall change to a post-pandemic world, we can imagine the branch of the future adopting forms as outlined in the figure below. Essentially, we believe that the branch of the future (irrespective of the specific form adopted) will be successful only when providing hyper tailored service offerings to the specific customers making an in-branch visit and at the same time providing a lean and efficient operating cost base for the incumbent retail bank.

To build business agility, boost innovation, and enable growth, a fundamental shift is required from incumbent Swiss retail banks - moving from inward-looking practices with rules and procedures, to outward-looking engagements through partnerships and collaborations. These complex ecosystems and platforms involving banks are already a reality today and are expected to evolve rapidly and more extensively in the coming years. The authors and survey participants of a recent study conducted by the University of St. Gallen and Deloitte expect an increasing importance of collaboration and partnering between non-financial services companies and banks, to leverage the banks’ direct access to a vast number of customers, their brand power and massive data sets through the application of ecosystems and platforms. Therefore, Swiss retail banks should foster their capabilities in developing and operating partnerships with FinTechs, BigTechs and RegTechs and also cross-industry, as this will be paramount for future business success in the next decade.

The required shift in mindset and underlying operating model is fundamental. Platform institutions do not merely create value themselves but orchestrate the value creation by outsiders. These network effects cause institutions to «invert», shifting value creation from inside the organisation to the outside. Inside scale is not as easily achieved as outside scale, as there are more customers than employees. If customers (i.e. platform users) are to create value for other customers, then they must be aided and rewarded for doing so. This means institutions (need to) shift from vertical integration to open orchestration.

The impact of environmental, social and governance (ESG) issues is increasing for the global, European and Swiss financial services communities. The complex transition towards an overall «net zero» economy will require a large-scale and long-term transformation that allows for new ecosystems to evolve across all areas of the economy.

In this regard, we expect (financial) regulators to introduce stricter and more standardised rules on ESG transparency to hold companies accountable for violations of global and local sustainability norms. In a recent example, the European Banking Authority (EBA) advised the European Commission to define a binding framework for European banks to provide increased transparency on the «pathway towards sustainability and financing activities such as those consistent with the Paris agreement». The European framework will entitle shareholders and stakeholders alike to improve their assessment of (long-term) sustainability risks related to their business and operating models of their banks. At the core of the framework - covered under the «Non-Financial Reporting Directive» (NFRD) - will sit a newly defined KPI, the so-called «Green Asset Ratio» (GAR). This ratio will measure European banks’ overall share of sustainable, climate-friendly assets and businesses, and will be published from 2022 onwards. The European «taxonomy for sustainable activities » (and green investments) is to be used as the benchmark for the classification of assets in the calculation of the GAR.