Retail banking study 2035: adaptability and new advisory approaches are key to future success

Retail banking is of crucial importance for the Swiss economy, with more than CHF 1,000 billion in mortgage loans, around 22 million debit and credit cards issued, more than 160 million card payments and over 12 million cash withdrawals every month.

The study highlights the industry's most important challenges and opportunities. It examines the following:

1. Retail banking margins will decrease in the long term
2. Innovative technology will intensify competition
3. Social and regulatory pressure on retail banks will remain high
4. Sustainability without economic added value for banks
5. Traditional retail banking remains a successful business model
6. Retail banks need new advisory approaches
7. High expectations of the customer experience cause rising costs
8. The depth of value added will increasingly differ
9. Today's employee profiles will be insufficient to meet future requirements
10. How big an influence will disruptive changes have?

The most important findings at a glance:

• Stability and attractiveness: The banks rate Switzerland as a business location as stable and attractive, but with challenges: more than two-thirds (69%) of retail banks expect margins to continue to narrow in the long term.
• Technological innovations: Eight out of ten retail banks (81%) expect innovative technologies to intensify competition in the medium term. The short-term impact of innovative technologies such as AI is overestimated but could influence value creation in the long term.
• Social responsibility: Swiss retail banks recognise the importance of trust and regional responsibility, particularly with regard to sustainability, but face challenges in implementing it. For more than half (57%) of the study participants, sustainability does not add any material economic value.
• Retail banking and advisory: The proven business model in retail banking remains successful, but banks must be vigilant and modernise their advisory approaches and make them more customer-centric in order to continue to act as a trusted primary bank. In this context, the financial literacy of their customers is becoming increasingly important. Customers also expect seamless channel integration, and bank branches will continue to have their raison d'être in the future.
• Employee recruitment and development: In view of demographic changes and the shortage of skilled workers, it is crucial for banks to attract and retain talent through meaningful work and development opportunities.

How likely are disruptive changes?

Finally, and looking back at the ten theses of the study, the study examined how likely the participating banks expect disruptive changes to be. In the medium term, disruptive changes are estimated to be low, with a mean value of 17%. Unsurprisingly, the probability of occurrence is estimated to be higher in the long term. Here, the mean value is 45%.

However, at what point does a development cease to be evolutionary and become disruptive? Prof. Dr. Markus Schmid, professor at the Swiss Institute of Banking and Finance at the University of St.Gallen and co-author of the study, summarises: “For retail banking, Switzerland is still an oasis of comfort with room for (almost) everyone. Despite the downturn, margins still have a comfortable crumple zone. The institutions also do not see any tectonic changes in the competitive environment, at least not in the medium term.”

Retail banking will still exist in ten years' time, and this also seems to be clear to the participating banks. Nevertheless, the study participants fundamentally agree that a lot is in motion and that the banks, for their part, must keep moving in order to be able to react flexibly to changes or even to drive changes themselves.

The complete study can be downloaded here: ey.com

Image: Adobe Stock / Summit Art Creations