Banking and capital markets trends 2020: Laying the foundations for growth

Andrin Bernet Partner, FS Banking Leader, PwC Switzerland 05 May, 2020

The anxieties of CEOs in banking and capital markets (BCM) are mounting. On top of long-standing angst about regulation, public trust and the pace of technological change, PwC’s 23rd Annual Global CEO Survey shows that their concern about the effect of unclear economic growth on their company’s prospects has risen sharply since last year. And this was before COVID-19 became a global concern, adding new pressure as banks stress test for portfolio health and liquidity. The survey also highlights growing worries about populism, trade conflict and geopolitical uncertainty. Yet all of these challenges could help accelerate operational transformation and open up opportunities for differentiation and growth.

It will not be an easy road. Some leading BCM groups have announced stellar returns at the beginning of 2020, but they’re the exception rather than the rule. For every record earner, there are countless others that are barely making enough to cover the cost of capital.

BCM CEOs are still having difficulty getting on top of regulation, digital transformation and cyber threats. And they remain among the most concerned of CEOs in any sector about technological change, despite making significant investment in it. Rather than reducing ‘technology debt’ and delivering new capabilities aimed at uplifting customer experience, a lot of their budget continues to be directed toward regulatory requirements and keeping the lights on. The underlying question they face is how much to spend on running the institution versus on changing it. With resources tight, it’s a difficult balance to strike. Some BCM organisations are exploring new partnering and funding models to speed up progress.

Digital transformation also raises the issue of trust. For example, the growing application of artificial intelligence in investment advising and loan approval makes it important to assure customers about how their data is used and how these new systems can benefit them. Effective cyber safeguards are also a critical part of sustaining trust. According to our survey, cyber threats now sit just behind regulation on the list of concerns that are keeping BCM CEOs awake at night.

“The COVID-19 situation has somewhat stabilised after the initial stress, going forward maintaining profitability will become an even greater challenge for banks. The focus on core business, reducing organisational complexities and the use of technologies, combined with digital upskilling, remain key themes of our CEO Survey.”

Andrin Bernet, Partner, FS Banking Leader, PwC Switzerland

Catalyst for change

With uncertainty comes opportunity. Economic upheaval is likely to cause an acceleration in strategic reorientation and operational turnaround. Companies that focus on key openings can chart a course for growth over the turbulent period ahead. Both our survey and our work with clients point to four important actions BCM CEOs should take:

1. Embrace a new role in the ecosystem — shift to open architecture
Our CEO Survey shows that customer experiences are BCM CEOs’ number one investment priority over the coming year. The importance of customer experiences is irrefutable. But in order to deliver on them, we believe that BCM organisations will have to invest in open architecture.

2. Upskill with a ‘bionic’ synthesis of human and machine capabilities

Less than 25% of BCM CEOs believe they are making significant progress in defining the skills that will drive their future growth strategy, and part of this might be because of a disjointed approach to tech transformation and people transformation. Rather than driving technology change in isolation and then defining the people skills needed to adapt to it, a potentially more effective approach focuses on ‘citizen-led innovation.’ With this approach, leaders encourage their people to become ‘infinite learners’ — or individuals who are constantly acquiring new skills. Then, the organisation can harness their ideas in order to innovate and help their people realise their full potential. Blending digital and human approaches is absolutely crucial in a world where customers still value personal interactions but also expect technology-enhanced experiences.

3. Make real changes that integrate long-standing challenges into business as usual

A number of factors that have been talked about as risks for some time have become the new normal, including over-regulation, cyber threats and climate change. In our CEO Survey, BCM CEOs cited over-regulation as the biggest threat to their growth prospects. To date, organisations have typically separated their budget for regulatory spending from their budget for building capability and customer experiences. In the new normal, competitive advantage will go to those that can allocate capital in a way that recognises the correlations (and potential synergies) among the three — where every dollar spent enhances regulatory compliance, capabilities and experiences simultaneously.

Our survey shows that cybersecurity is BCM CEOs’ number two investment priority over the coming year and they see cyber threats as the second biggest hazard to growth. More investment is needed. It’s also essential to strengthen vigilance and protection as delivery models become more open.

BCM CEOs in our survey consider climate change largely a reputational issue, rather than a product or service opportunity. We believe sustainability is now part of a licence to operate. This means BCM firms will have to move beyond the reporting standards imposed upon them and communicate a clear purpose and policies. Doing this will provide opportunities for new customer and employee propositions and for strengthened supply chains and partnerships.

4. Stay the course on simplification

BCM organisations should continue to simplify their operations by rationalising their product and service suite. It’s also important to make clear and disciplined choices about which particular customer segments they are best equipped to serve and who they should be targeting. Further priorities include streamlining corporate messaging to fewer key points that resonate with their target market. The benefit is twofold. By removing the unnecessary complexity of legacy infrastructure, they can reduce cost. And with simpler infrastructure, BCM organisations can seize on new revenue opportunities with greater agility. PwC’s 2019 fintech survey highlights how long many BCM organisations take to get innovations out of the lab and into the marketplace. Cutting through complex decision-making processes could help to speed up execution.

Turning uncertainty into opportunity

The market landscape for BCM is increasingly uncertain and challenging. Rather than following a reactive approach, the institutions that are set to emerge stronger are using the disruption as a catalyst for improving agility, strengthening their operational capabilities and sharpening differentiation. Key enablers include a simplified product set and new talent and delivery models. Through open architecture, there are also opportunities to enhance customer outcomes and carve out new revenue streams across an increasingly broad and flexible value chain. 

Contact us

Andrin  Bernet

Andrin Bernet

Partner, FS Banking Leader, PwC Switzerland

Tel: +41 58 792 2444