Retail Banking Is Losing Out

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Retail banking, traditionally a profitable business, is getting less attractive despite an increase of client numbers, according to a new study. Six conclusions compiled by

Every fifth bank can't make ends meet in retail banking: this is one of the conclusions by consultants Horváth & Partners from its survey of banks. And as many as 4 out of 10 banking institutes won't be profitable anymore by the year 2020.

The reasons are manifold. The classic high-street branch is losing in importance, while the digital exchange carries lower margins but gets all the more important. In many instances, there is no longer a need for relationship managers, said Marcus Niebudek, senior manager at Horváth & Partners.

Lack of Digital Strategy

Many banks still have no comprehensive digital strategy or one that is still in its infancy. Horváth & Partners therefore expects banks to be faced with a variation of six trends in coming years.

  • 1. Radical Cuts to Branch Network

While a fifth of all the surveyed bankers already complain that retail banking is no longer profitable, the number is likely to double by 2020. A rise in customer numbers won't be enough to compensate for the decline in profitability. More than two thirds of the banks plan to close branches as a consequence.

  • 2. Significant Reduction of Staff

With the branch closures, banks need fewer staff. More than 70 percent of the surveyed say they will cut the number of employees by as much as 20 percent.

  • 3. Fees and Commissions to Rise

Costs will need to be cut, but to remain profitable in the long run, banks will need to adjust their fees and commissions, according to the study. About two thirds of the surveyed institutes intend to raise both fees and commissions.

  • 4. Digital Banking Does Away With Relationship Manager

Almost all respondents expect digital banking to reduce the need for human beings. Advise will be given automatically and digital alternatives will take over from the human relationship manager. A digital, automated advisory service is much cheaper and a natural development for young digital natives.

  • 5. Relationship Managers by Video

Customer and bank adviser will meet more rarely than ever. Online chatting, video- and telephone-advisory will take over. More than 4 out of 5 banking experts believe that this type of banking will increase in coming years.

  • 6. Importance of Fintech Companies

While banks for long remained hostile to fintech firms, their approach has changed. More than 80 percent want to cooperate more closely with the fintech companies. For good reason: fintechs typically have no banking license ware rely on banks and their access to customers. The banks meanwhile can extend their services cheaply and flexibly, opening up additional potential for growth.


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