Europe's retail and savings banks need to slash their overheads and embrace digital solutions if they are going to remain competitive.
If necessity is the mother of invention, then Europe’s retail and savings banks should be primed for a period of innovation. At present, their situation is desperate. Hammered by low interest rates, cooler economic growth, tighter regulation and a stagnant, if not shrinking, customer base, there are few positives on the horizon. These difficulties are being compounded by the presence of nimble digital challengers, emerging in ever greater numbers, across the region. But for many, the most salient problem is one of cost. Presiding over vast physical footprints and legacy information and technology infrastructure, these institutions must act urgently to slash their overheads if they are going to remain competitive.
The Covid-19 pandemic has accentuated this dynamic. If, as it seems likely, customer behaviour has shifted in favour of digital offerings, then there is little use in maintaining a business model more suited to an analogue world. Though it is true, as some argue, that proximity to customers is advantageous, it is no longer a tenable business strategy. Instead, the continent’s retail and savings banks must accelerate this behavioural shift by educating less digitally-savvy customers, while relying on a core branch infrastructure for more specialised banking functions.
Beyond these measures, more complex challenges await. A shift to digital product and service offerings must be underscored by efforts to generate digital sales. Success in this domain would push the region’s banks into a brave new world, while vastly expanding potential growth avenues. So far, few lenders have demonstrated a willingness to disrupt themselves. For those that have, the early signs are encouraging. The creation of digital-only banks, targeting younger population segments, seems to have brought success to some banks in the larger European markets.
But time is working against Europe’s banks. On the one hand, they face a growing threat from digital challengers within their own borders; on the other, rival institutions from further afield continue to push the frontiers of digital banking in new and profound ways. The time has come for Europe’s retail and savings giants to respond. Adaptation will be painful for many but a failure to act, with speed, will be far worse.
