Simpler, smaller and more deeply connected to customers
The Australian banking sector is in a state of flux. Renewed debate about culture and reputation, as well as uncertainty around the pace, scale and breadth of strategic disruption to the industry, mean that the bank of the future will look very different to the bank of today. Bankers, regulators, directors and investors would do well to ask:
- What is the state of Australian banking today, and how is it changing?
- How should the industry respond to these changes, and what will it look like in the future?
- What can individual banks do today to win in the new environment?
Six powerful forces are shaping the banking industry in Australia today: changing demographics, technology, consumer behaviour, Asia, government and a subdued global economy. These forces are driving change at precisely the time when traditional value drivers for the industry – asset growth and, to a lesser extent, leverage – are dissipating, and may even reverse. As a result, return expectations and the future outlook for the industry are being revised down with almost every earnings announcement.
To continue creating economic profit for shareholders, banks need to become simpler and smaller, but more deeply connected to customers than they have been in the past. How? We propose six fundamental priorities for banks in the years ahead:
- Explicitly organise around the customer.
- Simplify the offer, face and voice.
- Optimise the footprint throughout the value chain.
- Focus on specific areas of innovation.
- Proactively embrace regulation.
- Put culture to work.
The winners – those who can successfully navigate this landscape – will also be more valuable than they are today. They will have more diverse sources of income and more sustainable economic profit. But this will not apply to everyone, and possibly not even to the industry as a whole.
For perhaps just the third time in three decades, the industry is poised for fundamental realignment. Managing this transition, and the timing of necessary changes, will be crucial to success in the years ahead.