The latest World Retail Banking Report reveals a disconnect between short-term cost-cutting objectives and the longer-term digital transformation investment needed for incumbent banks to stay competitive.

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Each year the World Retail Banking Report (WRBR), published by Capgemini and Efma, provides a detailed snapshot of the sector and its main challenges. The 2021 edition, entitled Sustainable Experiential Banking, has interesting insights coupled with an industry survey.

The challenges for this segment is manifold. There is no doubt that the retail banking industry has been at the forefront of disruption, with both fintech and big techs eating away at the business. In addition, low interest rates, shrinking margins and the rising risk of post-Covid-19 consumer and small and medium-sized enterprise bankruptcies makes the operating environment increasingly challenging. Merger and acquisition activity is on the rise and many are concerned for their future survival.

However, the WRBR survey of more than 100 executives shows that retail banks are cost cutting on all fronts, even in the areas of innovation and digital transformation.

There is no doubt that retail banking has been at the forefront of disruption, with fintech and big techs eating away at the business.

When asked what kept them awake at night, competition from new-age players came top of the list, with evolving consumer behaviour not far behind. “In the post-Covid-19 era of fierce competition and high customer expectations, reviewing priorities and realigning investments in growth areas will be essential for bank success,” says the report.

Yet when asked about their IT spending priorities, about a third of respondents reported postponing large digital transformation initiatives and/or reducing IT budget for new initiatives. The survey also found that banks face practical dilemmas. For example, 42% of respondents indicated that they weren’t sure how to integrate and streamline mid-, back- and front-office functions effectively, while 46% were unsure how to embrace open banking, orchestrate the ecosystem and become a truly data-driven organisation.

Despite the poll responses, the report’s authors argue that retail banks need to embrace what they call “Banking 4.X”, where banking is embedded into customers’ lifetime experiences. This next wave of banking includes everything you would expect: full adoption of cloud technology, application programming interfaces, open ecosystems, banking-as-a-service platforms, data-driven hyper-personalisation, artificial intelligence, fintech and big tech partnerships and so on.

While having all the bells and whistles of invisible banking may see like a pipe dream for some retail banks who are still grappling with legacy IT systems and revenue constraints, the message is clear: now is not the time to take your foot off the digital accelerator – surge ahead with full-throttle transformation.

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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