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Key Takeaways From McKinsey’s 2020 Global Banking Review

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McKinsey’s 2020 Global Banking Review

The coronavirus pandemic brought an end to a decade-long window of opportunity for banks. Most industry incumbents did not use the bull market and rich returns to prepare their businesses for a looming downturn. In many cases, banks did not adapt their business models and adopt technology that would allow them to sustain what is shaping up to be a considerable period of zero-interest rates. 

As margins and revenues continue to shrink, banks will need to find ways to preserve capital and rebuild profits. Credit losses and a muted economic recovery will be a profound challenge for banks and banking systems. Depending on the recovery pace, $1.5 trillion to $4.7 trillion in cumulative revenue could be lost between 2020 and 2024.

McKinsey expects global banking ROEs not to return to pre-crisis levels for at least five years

McKinsey expects global banking ROEs not to return to pre-crisis levels for at least five years. 

Source: McKinsey Global Banking Annual Review 2020

Consulting firm McKinsey & Company recently published its 2020 Global Banking Annual Review. In the tenth edition of the report, McKinsey explored how companies can use the best new ideas from digital challengers to improve productivity and capital accuracy to bank through the crisis and beyond. 

As a core banking software provider, we devote a lot of time and resources to researching how global changes impact our clients and the industry. At SDK.finance, we believe that understanding how disruptive trends affect the world is key to developing modern banking platforms and future-proofing our products. 

Here are the three key takeaways we got from reading the new report.

  • Strengthen the technological foundation

During the 2008 crisis, banks that reacted quickly and decisively were much better off than those that ignored or delayed important decisions. Banks that capitalize on this lesson can overcome the current downturn and come out stronger on the other side. McKinsey outlines three levers that banks can pull: increase revenues, manage costs, and better manage their equity capital. Resolute and timely action can improve efficiency by 20%-30% if banks dedicate themselves to continuous improvement instead of one-and-done programs. 

2020 Mckinsey’s Global Banking Annual Review

Source: 2020 Mckinsey’s Global Banking Annual Review

The demand for cash has fallen by 20-40% in most markets over the past year. Decreasing the use of cash and checks, core transactions for branches, is why banks need to accelerate the shift to digital banking platforms. As customer preferences shift towards digital channels and contactless payments, banks that invest in maintaining legacy infrastructure will see their costs balloon and responsiveness decrease. 

To this day, less than 10% of an average bank’s technology expenses increase value-added business functionality. As the pandemic transforms customer journeys and demand for digital banking soars, banks need to radically reform the traditional IT function by shifting to platform-oriented architecture. Modern core banking platforms work across borders and products, providing access to real-time data flow and critical analytics. 

  • Reinvent the business model

The expectation of a prolonged period of near-zero interest rates for years to come is forcing banks to reevaluate their business models. With a history of strong reliance on interest income and models built on risk intermediation, banks are now threatened by financial services intermediating services for fees, such as payment networks. 2020 is the first time the market cap of the largest three payments companies worldwide surpassed that of the three largest banks. 

FinTechs and technology platforms capturing incumbents’ market share is another critical challenge for banks. Instead of relying on interest income to succeed in financial services, these tech challengers often thrive on origination fees or debit interchange, leaving interest rate risk and income to their partner banks. FinTechs drive engagement using seamless customer experiences, innovative products, and attractive rates on platforms that gather and monetize customer data. 

  • Adopt the challenger playbook 

As the threat of disintermediation by FinTech technology in a low-rate world becomes more real, banks cannot afford to forego new digital ideas. Leading banks are already taking on the best performing strategies of their digital challengers. In the past decade, banks that created internal digital bank spin-offs optimized revenue and reduced operating costs by up to 70%. 

This approach allows banks to test concepts at lower risk before moving parts of the legacy business to the new system. Notable examples include Goldman Sachs’ Marcus, Bó by RBS, and State Bank of India’s YONO that acquired more than 26 million customers and broke even within 18 months.

Unconstrained by legacy technology constraints, banks can dramatically lower cost to serve and acquire customers by expanding digital-only services. Modern banking core platforms also open up the capability to partner and embed services in other ecosystems, capitalizing on the competition’s seamless digital experiences. 

Banks have kept the financial system operating well in the first phases of the downturn. Now they need to concentrate on opportunities and productivity improvements available to restore and sustain livelihoods worldwide.

SDK.finance enables banks and financial institutions to build next-generation financial products with its core banking platform. 

Contact the SDK.finance team directly to learn more about what type of banking software will be perfect for your business needs.

The list of SDK.finance solutions includes Digital Retail Bank, Microsoft Power BI payment dashboards, Voice Banking, Money Transfer, Currency exchange.

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Source: https://sdk.finance/mckinseys-2020-global-banking-review/

Fintech

HSBC Rolls Out Recycled Plastic Payment Cards

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We’ve seen a widening range of ways that fintechs and financial services companies are responding to the global crisis of climate change. Finovate Best of Show winner Meniga, as just one example, teamed up with Iceland’s Islandsbanki earlier this year to launch its carbon footprint tracking, green banking solution, Carbon Insight. In March, we looked at 25 different fintech companies that were “going green” with initiatives that ranged from leveraging customer deposits to fund “climate-positive projects” to helping investors build portfolios of low carbon companies.

Today we learned that HSBC is commemorating this year’s Earth Day with news that it plans to eliminate single-use PVC plastic payment cards by the end of 2026. Instead, the bank will use recycled PVC plastic (rPVC), a shift already underway in markets like Malaysia and Sri Lanka. The new cards, part of HSBC’s goal of reducing its carbon emissions and reaching net zero in both operations and supply chain by 2030, are expected to reach the U.K. by summer, with markets in South Asia and North America – including the U.S. – getting the new cards by the end of the year.

“This is another step as we move towards a net zero business, to help the bank and our customers make a positive impact on the environment,” HSBC group head of retail banking products Richard Harvey said.

An issuer of 23 million cards a year, the transition to the rPVC-based cards is expected to reduce CO2 emissions by 161 tons a year. The switch will also result in a significant reduction in plastic waste — by 73 tons a year.

Not all who heard HSBC’s Earth Day message were moved, unfortunately. A small group of climate change activists broke windows at the bank’s Canary Wharf headquarters as part of a protest against HSBC’s business with fossil fuel-based companies. Nine women were eventually arrested in the protest, which was planned by a group called Extinction Rebellion.

And while the incident likely took some of the shine away from the HSBC’s environment-positive messaging, when it comes to Earth Day activism, it could have been worse


Photo by Anete Lusina from Pexels

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Source: https://finovate.com/hsbc-rolls-out-recycled-plastic-payment-cards/

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US, Canada lead in open banking adoption, with 16 million using API

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Sixteen million consumers in the United States and Canada are using the Financial Data Exchange’s (FDX) open banking and finance API, according to data reported by the nonprofit financial sector standards organization Wednesday. Open banking allows third-party vendors to access data collected by banks and financial institutions using software gateways, or APIs, and FDX works […]

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Source: https://bankautomationnews.com/allposts/infrastructure/us-canada-lead-in-open-banking-adoption-with-16-million-using-api/

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FinovateSpring Digital 2021 Sneak Peek: FINBOA

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A look at the companies demoing at FinovateSpring Digital on May 10 through 13, 2021. Register today and save your spot.

FINBOA’s workplace automaton platform and workflow solutions, including Regulation E Dispute Tracking, transform compliance processing for banking institutions, increasing efficiency by 80-90%.

Features

  • Improve efficiency and customer experience with process automation
  • Reduce regulatory deficiencies and compliance risk with workflow solutions
  • Increase information access with centralized data management

Why it’s great
With impactful, easy to adopt, and quick to deploy process automation solutions, FINBOA helps banks and credit unions improve compliance, efficiency, and customer experience enterprise-wide.

Presenters

Dave Hunkele, Advisor to FINBOA
Hunkele advises FINBOA through his company, Kreativelabs Consulting, and works with fintechs, financial institutions, and industry associations helping organizations innovate, grow, and transform.
LinkedIn

Raj Singal, CEO & Founder
Singal is the CEO & Founder of FINBOA. He is a leading innovator in back-office process automation solutions for banks and credit unions.
LinkedIn

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Source: https://finovate.com/finovatespring-digital-2021-sneak-peek-finboa/

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Fintech

FinovateSpring Digital 2021 Sneak Peek: Quantum Metric

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A look at the companies demoing at FinovateSpring Digital on May 10 through 13, 2021. Register today and save your spot.

Quantum Metric helps organizations build better digital products faster. Our platform for Continuous Product Design gives business and IT teams a fast and quantified single version of truth.

Features

  • Enables real-time data driven decision making
  • Aligns siloed teams like business and IT
  • Centers the product design process around customer interactions

Why it’s great
Quantum Metric helps companies increase organizational alignment and digitally transform their customer experiences.

Presenters

Jake Canaan, Sales Engineering Manager
Canaan leads the Solutions Engineering teams in the Northeast and Great Lakes for Quantum Metric. He is based in Washington, DC.
LinkedIn

Trevor Pyle, Director of Product Marketing
Pyle is a Director of Product Marketing focused on the core Quantum Metric platform. He is based in beautiful Denver, Colorado.
LinkedIn

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Source: https://finovate.com/finovatespring-digital-2021-sneak-peek-quantum-metric/

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