The industry will likely need a more robust, forward-looking framework to successfully navigate the evolving privacy landscape. Come the year 2021; the industry will have to chart a clear path that will overwhelm the obstacles. But while the way banking is done changes, banks’ role will likely not. Redesigning customer experience by removing friction, enhancing value through rewards and access to other financial products, and bolstering security are expected to remain top priorities for payment providers. Large US banks, despite the economic challenges ahead, have a head start in readjusting to a new world. Payment providers will also be forced to expand alternative revenue streams. One thing is certain: rapid change will be the new constant. As corporate clients start to adjust their financing needs in response to a potential global slowdown in 2020, transaction banks can add more value to their clients. To address fiduciary responsibility, the US Securities and Exchange Commission (SEC) approved Regulation Best Interest (Reg BI) in 2019,29 which enhances conduct standards for broker-dealers and investment advisers when dealing with retail clients. These initiatives involve significant technology upgrades and tremendous capital and change effort. Globally, banks account for approximately 55 percent of the US$3.2 trillion leveraged loan market,128 and it continues to be a major concern for regulators and analysts worldwide, given the increasing risks. Banks should still be best positioned to own the customer relationship, which would enable them to rethink their value proposition and serve client needs holistically, supported by data and analytics. The need for scale and the desire to bolster digital capabilities, along with having a lower cost structure to enable change, will likely be the primary motivations. Though many firms feel they have a handle on more traditional financial risks,156 financial crime is entering a new age. 2020 banking and capital markets outlook Disruptive forces are changing how banking is done. However, data that resides in banks’ siloed systems is just one piece of the puzzle. Hazuria is a chartered accountant and has a bachelor’s degree in economics and management. Banking Regulatory Outlook in 2020. The banking industry is faced with many challenges. The impact of these technologies, though, is only one part of a major shift that’s happening across industries. To drive revenue growth, retail banks should focus on loan and payments products over deposit accounts. AccessFintech, which specializes in collaboration, transparency, and control to the financial services industry, is an example. Specific expectations across seven business segments: retail banking, corporate banking, investment banking, transaction banking, payments, wealth management, and market infrastructure. View in article, Ryan Lichtenwald, “StreetShares is the latest fintech to launch a lending-as-a-service offering,” Lend Academy, September 19, 2019. In Bank Innovation’s State of Banking Innovation in 2016 survey, we asked the survey’s 171 respondents — the majority of whom self-identified as bankers —what they thought banking will be like in 2020. View in article, Philip Fellowes et al., “The future of treasury,” HSBC, April 9, 2019. In its most recent report, the International credit rating agency Moody’s Investor Service (Moody’s), has assigned a negative outlook for the banking industry in Asia Pacific over the next 12 months as the US-China trade war continues on to 2020. The print platform built by Banking CIO Outlook explores technological and behavioral trends in the banking industry with the help industry experts, in a bid to share ideasand … View in article, Royalty Exchange, “Home,” accessed October 4, 2019. Financial services clients expect meaningful and personalized experiences through intuitive and straightforward interfaces on any device, anywhere, and at any time. How this phenomenon plays out globally remains to be seen. Outlook 2020 With a new decade comes new challenges and opportunities. Total assets were US$16.5 trillion, up by 3 percent from the previous year.6 Tax cuts and higher federal funds rates (until mid-2019) were significant contributors to increased profits. Mid-sized banks seek M&A shelter 2019 saw a lot of merger and acquisitions activity in the payments and brokerage sectors driven by fee compression. View in article, Irish Tax and Customs, “What is Automatic Exchange of Information (AEOI)?,” September 25, 2019. View in article, SIFMA and Deloitte, “A firm’s guide to the implementation of Regulation Best Interest and the form CRS relationship summary.” View in article, David Trainer, “How AI can help advisors grow and keep assets,” Seeking Alpha, April 4, 2018. View in article, Nichola Saminathe, “Canadian banks brace for tougher times as ‘Goldilocks' era winds down,” Reuters, August 30, 2019. Fraud and money laundering are now increasingly being conducted in cyberspace. The Commercial, Business and Retail Banking Outlook for 2020 and Beyond. 3 While losses can be expected in every loan category, they may be most acute within credit cards, commercial real estate, and small business loans. For instance, while almost every bank in the United States offers a digital mortgage application, only 7 percent manage end-to-end digital loan disbursement.76 This is material since traditional lenders have operating expenses that are three times those of digital lending players for their services.77. View in article, Zuhaib Gull and Syed Fariq Javaid, “Bank M&A 2019 deal tracker: Prosperity/LegacyTexas merger boosts June deal value,” S&P Global Market Intelligence, July 16, 2019. As a result, many have begun to rethink their technology, data, and analytics capabilities to improve their processes and boost efficiency. Now comes the hard part: the rise of nonbanking platform companies targeting the most profitable parts of the banking value chain. View in article, Owen Walker, “Impact investment universe grows to $502bn,” Financial Times, April 1, 2019. In 2020, these issues remain unresolved and a weaker global outlook in addition to monetary loosening in both Europe and the US is likely to increase pressure on bank margins and slow revenue growth. View in article, Leo Lipis and R. Andrew Gómez, Get more from real time payments, ACI Universal Payments and Lipis Advisors, 2019. While more blockchain-based experimentation and solutions could be developed, cloud adoption might not happen quickly due to security concerns and speed. He leads the development of our thought leadership initiatives in the industry, coordinat... More, Jim is the managing director of the Deloitte Center for Financial Services, where he is responsible for defining the marketplace positioning and development of the Center’s eminence and key activities... More. As consumers’ digital footprints rapidly grow, new kinds of data are added into the mix. Instead of shying away from change, leaders should imagine the possibilities for how best to ride this wave of disruption. View in article, Ivy Schmerken, “U.S. Despite this, demand for corporate loans in Europe has remained robust, supported by low interest rates.125, In Asia, the ongoing US-China trade conflict has begun to weigh on business lending. As technology continues to advance and new forms of data emerge, how should banks adapt their privacy practices? View in article, Shanny Basar, “New sterling FRNs transition from LIBOR”, MarketsMedia, July 11, 2019. Only those financial institutions that build a collaborative and innovative culture to drive change can achieve real returns on their technology investments in the next decade. Banking Industry Outlook 2020 The U.S. economy continues to grow and the banking system is in its strongest position in decades, according to Gerard Cassidy, managing director of RBC Capital Markets. Jan Schoeps is a research manager at the Deloitte Center for Financial Services. Powerful forces are shaping the industry PwC Retail Banking 2020 5 Against this background, 70% of global banking executives believe it is very important to form a view of the banking market in 2020 – to understand how these global trends are impacting the banking system in … View in article, Val Srinivas, Sam Friedman, and Tiffany Ramsay, Reimagining privacy for the digital age, Deloitte Insights, May 20, 2019. February 11, 2020. Equally concerning is central banks’ limited repertoire of monetary tools; rates are either at historically low levels or bordering on/in negative territory in key regions around the world.21 The recent move by the European Central Bank (ECB) to cut rates and reinstate quantitative easing could stir growth, but if it doesn’t, it could result in more pain. There could very well be greater competition from insurance companies, private equity firms, traditional asset managers, and fintechs in the corporate lending space. As part of our Global banking M&A outlook H2 2020 report, we explore the areas of the overall banking sector most likely to be impacted, including valuation and profitability. This leaves banks that provide cannabis-related banking services in a precarious position. Banks and capital markets firms are increasingly becoming aware of their social responsibility, and many are taking meaningful actions. (See Reimagining customer privacy for the digital age for more information.). According to a survey of more than 1,000 U.S. banking customers by Statista, over half of respondents said they were either already using a digital-only bank as an alternative or were familiar with the option and probably going to use it. View in article, Larry Tabb, “LSE/Refinitiv: Panning for gold in financial flotsam & jetsam,” TabbForum, August 1, 2019. Global investment in banking startups has quadrupled from 2014 to 2018165 and could reach US$39 billion in 2019 if the strong investment flows of the first three quarters of 2019 continue (figure 9). But, as final rules have yet to be issued, uncertainty remains. Anticipating the wave of disruptions over the next decade, bank leaders should reimagine the possibilities for how banking is done with big, bold ideas. In Europe, where the banking industry is fragmented and suffering from anemic growth prospects with low to negative interest rates, the need for scale is becoming more pressing than in the United States. The focus will likely also shift from local to global decision optimization (for example, finding the best liquidity solution to considering broader factors and decision impacts). Digital products and services—for example, supply chain finance, specialized support, easy integration, or flexible funding options—could lead to new fee income opportunities and help protect against revenue pressure. Nevertheless, scale and efficiencies will be dominant factors. For the most part, the industry has dealt well with these changes. Please see, Telecommunications, Media & Entertainment, Transaction banking: Need for bold change, Within reach? The banking industry plays a huge role in the global economy and is undergoing a huge technological shift. Redefining work, workforces, and workplaces, Deloitte Insights, April 1, 2019. Banks have long safeguarded consumers’ private information and used this data at macro and micro levels to serve clients. Transaction banks have had to contend with some notable changes to regulatory and industry standards, including the second Payment Services Directive (PSD2), ISO20022, SWIFT gpi, and LIBOR transition. Additionally, attempts to reform Fannie Mae and Freddie Mac are likely to gather speed.28 The US Treasury Department’s initial proposal seeks to privatize the entities, loosening the government’s influence on residential mortgage lending over time. For instance, by 2100, rising sea levels could cost the world US$14 trillion a year,182 and the US economy could shrink by as much as 10 percent.183, Unsurprisingly, for the third consecutive year, world leaders ranked environmental threats as the biggest risk to the world.184 The banking industry is not immune: A recent Fed report found that the effects of climate change have a “pervasive effect” across all sectors of the US economy, including the banking industry.185, As such, central banks around the world, including the Fed, the ECB, and the Bank of England, are examining the implications for monetary policy and are also seeking ways to “bolster banks’ resilience amid economic disruptions caused by extreme weather.”186 They have also organized the Network for Greening the Financial System (NGFS) to boost climate risk management.187 Additionally, the Financial Stability Board (FSB) established the Task Force on Climate-related Financial Disclosures (TCFD).188, Many banks are already committed to improving the environment and combatting climate change. View in article, Sean Smith and John Kernan, “Update on CRD5/CRR2 latest progress,” Deloitte, 2018. View in article, Karl Ehrsam, “The impact of SEC's new advice standards on broker-dealers and investment advisers,” Deloitte, 2019. Most European banks, on the other hand, will be forced to rethink their global ambitions and pick the businesses they want to succeed in, though they must be careful not to discard core functions to remain competitive in the future. January 14, 2020. However, the appetite to do deals has been suppressed, given that almost every institution is still preoccupied with internal house cleaning.162 The political realities of cross-border mergers further complicate the picture. Next, banks should consider digitizing front- and back-office functions to boost operating efficiency and deliver the seamless, digitally enhanced experience that corporate clients increasingly crave. As we enter a new decade, banks should also fortify their core foundation on multiple dimensions, including technology infrastructure, data management, talent, and risk management. In Europe, the persistent reality of negative rates—expected to last for several more years69—has pushed down NIMs, with lending margins in Germany, for instance, declining since late 2009.70 The ECB’s September rate decrease has only intensified the pressure. And the ultra-wealthy are fueling the rise of family offices globally, simultaneously increasing investments into alternative asset classes, enabled by (private) feeder funds solutions of the likes of Artivest or iCapital Network.95, Meanwhile, the competitive differentiation among offshore wealth centers has been shifting from regulation and tax factors to, more recently, provider capability and digital maturity, where countries such as the United States, United Kingdom, and Switzerland typically have an advantage. There may be no better time than now for banks to reimagine transformation and pursue strategic change in 2019. View in article, The Federal Reserve, “Settlement assessment,” accessed on August 21, 2019. Meanwhile, US banks continue to get stronger, generating 62 percent of global investment banking fees in 2018, up from 53 percent in 2011.100 US banks’ share of fees could grow as some major European banks reduce their investment banking aspirations and refocus on “traditional” home-market core activities.101 How Asian banks will fare could hinge on whether and how regulators implement regulations, such as the treatment of internal risk models, which had proven challenging for many US banks in the past. And, of course, intelligent automation, electronification, and a blockchain system for trading, clearing, and settlement could be pervasive, leading to greater efficiencies and declining margins. The industry could see unbundling of the value chain, with players focusing on what they do best, while other parts are outsourced. They should also explore ways to foster connections for their virtual workers. 2018-16—derivatives and hedging (topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR), Overnight Index Swap (OIS) Rate as a benchmark interest rate for hedge accounting purposes, Rising sea levels could cost the world $14 trillion a year by 2100, Temperature and growth: A panel analysis of the United States, Fed readying financial system for climate-change shocks, Central banks are thinking greener as climate change hits policy, Network for greening the financial system, Task force on climate-related financial disclosures, Central bankers, supervisors and climate-related risks, Achieving gender equity in financial services leadership, Executing the open banking strategy in the United States, Recognizing the value of bank branches in a digital world, The value of online banking channels in a mobile-centric world, Fair valuation pricing survey, 17th edition, executive summary, The digital banking global consumer survey, Corporate Responsibility and Sustainability. In Asia Pacific, tapering growth, declining credit quality, and eroding margins could prompt M&A. Securities servicing firms, on the other hand, are expected to continue to provide data analytics and insights to enable their clients to make informed investment decisions. View in article, Kevin Laughridge, Ketan Bhole, and Abhijit Kumar, “Digital transformation hits core banking,” Deloitte, July 27, 2019. View in article, Philip Stafford and Hannah Murphy, “MiFID II starts to weave its influence through markets,” Financial Times, September 30, 2019. − Bank downgrades will be limited this year, however, thanks to their strengthened balance sheets, massive support from authorities to household and corporate markets, additional flexibility offered by regulators, and the sustained economic recovery. View in article, Val Srinivas, Sam Friedman, Tiffany Ramsay, Reimagining privacy for the digital age, Deloitte Insights, May 20, 2019. View in article, DigFin Group, “DBS leveraging of APIs yielding profits,” March 24, 2019. A new wave of disruption more forceful and more pervasive than what we have seen in recent years will likely unfold in the next decade. AI-powered, digitally assisted conversations during servicing could revamp routine communications, enhancing the client relationship and marking another step toward differentiation. View in article. While fintechs are driving much of the disruption, incumbents are not far behind. In North America, payments providers should be mindful of actions by the Fed and Payments Canada to determine potential strategies and learn from initial adoption. Leadership perspectives from across the globe. Asian banks are expected to continue to build their capabilities to serve local markets. View in article, Ranina Sanglap and Baby Verma, “Indonesian M&A to still prove attractive for Asian banks in 2019,” S&P Global Market Intelligence, January 29, 2019. 0. 339–59. Coming December 2020: 2021 financial services industry outlooks Finally, the much-awaited go-live implementation of the Consolidated Audit Trail (CAT) reporting in April 2020 should reveal immediate benefits. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Amid global regulatory fragmentation, financial institutions—especially those with large global operations—are under significant pressure to reconcile local jurisdiction demands and their home country regulations. For instance, debt issuances as well as trading volumes of exchange-traded futures and swaps tied to SOFR continue to increase. PwC Retail Banking 2020 Overview Powerful forces are reshaping the banking industry, creating an imperative for change. View in article, Shearman & Sterling. In this video, Cassidy talks about the positive credit quality that has undergirded banking … The Asia Pacific Banking Industry Outlook 2020. What are the key trends, challenges, and opportunities that may affect your business and influence your strategy? View in article, “Top 1000 world banks 2018,” Banker, July 2, 2018. View in article, Nicholas Comfort and Alexander Weber, “Why that European bank M&A wave faces huge hurdles,” Bloomberg, April 23, 2019. With this disruption, though, comes endless opportunity. Total assets have remained steady at around US$25.8 trillion.11. Traditional providers should aim to enhance their relevance with customers by increasingly providing them with real-time, contextual, and personalized services. He leads the development of our thought leadership initiatives in the industry, coordinating our various research efforts and helping to differentiate Deloitte in the marketplace. Some banks in the US $10 billion to US$50 billion asset range are now rethinking their options. The drive for alternative revenue streams will spur product innovation, such as ICE’s Credit Risk, and promote acquisitions in market data, technology, and analytics.145 Also, exchanges could seek to be outsourcing partners to the sell-side, as banks look to trim their cost structures. View in article, CME Group, “Secured Overnight Financing Rate (SOFR) futures,” October 14, 2019. These new products and services can support the role of relationship managers by allowing them to take on an advisory role beyond lending. View in article, Pymnts.com, “Banking App N26 eyes US expansion,” April 1, 2019. Fortifying the core for the next wave of disruption, Risk: Leveraging technology to elevate risk management, Talent: Focusing on the human side of transformation, Payments: Remaining relevant as further disruption looms, Wealth management: The new core of the banking relationship, Investment banking: More pain before any gain, Corporate banking: Enhancing value streams beyond lending, Market infrastructure: The ongoing search for a new identity. In the United States, some of the uncertainty related to bank charters is likely to continue. Certain services may not be available to attest clients under the rules and regulations of public accounting. According to the Banker,2 return on capital (ROC)3 as of 2018 was 13.7 percent, higher than 13.5 percent at the end of 2017.4 However, the industry still has not found its way back to sustainable profitability levels, with return on equity (ROE) of 9.6 percent being below the 12 percent mark often associated with banks’ cost of capital.5 Global assets declined to US$122.8 trillion, mainly due to the disposal of noncore assets by European banks (figure 2). On the other hand, biases, automation errors, and rogue programs could result in algorithmic risk.54. Finding fresh value streams outside loans will likely become an imperative, especially as economic uncertainty weighs on loan demand and as more fintechs (such as Kabbage132 or StreetShares133) enter the lending space with alternative models. Despite the aging platforms that need to be upgraded and new market-clearing capabilities to adjust to, the appetite for bold change in transaction banking seems limited, partly due to the lack of real urgency, and partly due to the notion “if it ain’t broke, don’t fix it.” Stable performance and short-term-oriented leadership have likely hindered innovation. View in article, Imani Moise, “Citi combines its stock trading and prime brokerage business,” Reuters, July 29, 2019. Don’t let short-termism distract from developing a larger, bolder vision. As fintechs become mainstream, the issue of how best to regulate them has become more urgent. View in article, Liz Hoffman and Telis Demos, “How U.S. banks took over the world,” Wall Street Journal, September 4, 2019. US banks report weakening demand across several loan categories, partly citing increased competition between banks and from nonbank lenders, such as private capital firms and fintechs.123 In the search for growth, some large banks are sharpening their focus on middle-market deals.124 Additionally, economic uncertainty and risk perceptions have pushed banks to take a heightened look at credit quality and tighten standards. View in article, FIA, “Special report: CFTC advances two proposals amending oversight of non-U.S. clearinghouses,” July 11, 2019. This will comprise payment, credit, rewards, and security components but should also include the flexibility to interact with different experience providers. Millennials and Gen Zs hold the key to creating a “better normal”. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. An average of $2,300 per employee, Deloitte survey finds, Thoughts on cybersecurity from a supervisory perspective, What’s driving the sudden spike in bank M&A, Bank CEOs quiet on M&A ambitions as expectations for consolidation build, Why that European bank M&A wave faces huge hurdles, Indonesian M&A to still prove attractive for Asian banks in 2019, No bank employee will be hurt in consolidation of PSU banks, assures govt, Stripe launches Stripe Capital to make instant loans to customers on its platform, “Australia gives banking license to mobile startup firm Xinja, World Bank launches market's first SSA Secured Overnight Financing Rate (SOFR) bond, MetLife breaks ground with $1 billion bond based on LIBOR heir, Fannie Mae pioneers market's first-ever Secured Overnight Financing Rate (SOFR) securities, Secured Overnight Financing Rate (SOFR) futures, Repo-market tumult raises concerns about new benchmark rate, ARRC recommendations regarding more robust fallback language for new originations of LIBOR syndicated loans, Accounting standards update no. Banks can add customer value by fortifying their foundation and staying true to their core identity as financial intermediaries, matching demand with supply of capital. Val Srinivas is the banking and capital markets research leader at the Deloitte Center for Financial Services. View in article, Kevin J. Stiroh, “Thoughts on cybersecurity from a supervisory perspective,” Federal Reserve Bank of New York, April 12, 2019. See Terms of Use for more information. View in article, Liz Hoffman and Geoffrey Rogow, “Giant investors are coming after one of Wall Street’s cash cows,” Wall Street Journal, June 26, 2019. Banking industry executives must feel like they’re in for a roller-coaster ride on the regulatory front in 2020. She has more than seven years of experience in financial research. View in article, Lee Olesky, “CNBC: Lee Olesky discusses the electronification of the global bond market,” filmed during the 2019 Sandler O’Neill Global Exchange and Brokerage Conference, New York, June 7, 2019. Consumer privacy has become an increasingly complex and contentious topic, as the tools and technologies capturing data about every facet of our lives have proliferated. Banks should rethink and innovate pricing models accordingly. Many banks are still struggling with how best to tackle these challenges. See Terms of Use for more information. Lastly, digital transformation is not limited to technology and data. Out of private debt by government schemes and borrowers looking to repay debt as the 2021 deadline for the,. To leverage the power of new startups has declined, which can prevent banks from realizing the full potential investments. Richa Wadhwani is a chartered accountant and has a bachelor ’ s second quarter of 2020 collection, explore findings. 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