Banking trends to watch: digital and customer transformations

05 February 2020 5 min. read
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Jonathan Shawcross, Managing Director of Banking at performance improvement consultancy Gobeyond Partners, reflects on two major trends set to impact UK’s banking scene this year.

2019 saw continued pressure on the traditional UK banks. Margins remained squeezed through rates staying lower for longer; regulatory pressure continued; the ‘tail’ of PPI proved extremely painful; political and economic uncertainty around Brexit prevailed; the investment required for digital-led transformation remained high and the continued competitive pressure from new challengers, all made for a difficult operating environment. Whilst some of these factors will ease in 2020, don’t expect the situation to get too much rosier for the larger incumbents any time soon. 

Digital of course remains the big story in town in terms of product and service delivery, in both the retail and commercial sectors. 2019 saw the staggering news that over 1/3 of all UK branches (over 3,300) had closed since 2015. Whilst the rate of closures finally started to slow in 2019 as networks for the biggest players reach ‘right size’, 2020 will continue to see further closures as customer behaviour continues to evolve and latecomers to the closure process, such as TSB, complete their adjustments.

In parallel, 2019 signalled a scale up of the new digital challenger banks and their associated impact in the market – Starling Bank reached one million customers during the year and many challengers continued to see ‘triple digit %’ growth in transaction volumes. Scaling in a stable and manageable way, successfully managing a wider variety of customer journeys and driving to sustainable profitability will continue to be the key conundrums for these new players to solve.

Trends for UK's banking sector in 2020

In the push for the incumbents to be able to compete against the new challengers, a notable strategic step was taken by RBS, who announced their own ‘digital challenger’ in 2019, with the launch of ‘Bo’. HSBC’s ‘Kinetic’ for Business customers and Lloyds’ investment in ‘Thought Machine’ (the tech platform behind Atom Bank), signals their own intentions. These moves by the large players gives them the option to compete with the new challengers on a more level playing field, experiment with new technologies such as AI and potentially enables them to leave behind their product orientated, higher risk, legacy systems, sooner. Expect to see more launches of this type in 2020. 

Customer experience

Beyond such strategic moves, investments by traditional banks in 2019 in the UK continued to shift from back-end operational cost reduction and improvement programmes, into front-end, customer-led investment, with organisations far more focussed on transforming both their digital and non-digital ‘journeys’. 

Throughout this coming year, we expect to see the profitability squeeze continue in an increasingly difficult UK banking market – this will only make such major investments more and more challenging, yet more and more critical. These will be difficult decisions to make. 

Recent Gobeyond Partners client research on the topic of ‘customer experience and digital transformation’ in 2020 and beyond, indicated that there was significant nervousness in the banking sector – only 11% of those surveyed in the industry expected their revenues would increase significantly over the next 12 months. Banking was also one of the most concerned sectors when it came to new technology. 61% of respondents expressing that they were concerned with the impact that the current speed of technological change will have on their own ability to grow. 

Given that we expect to see an increased use of AI across the sector to drive more tailored experiences and more targeted promotions to customers directly, firms will need to work hard to overcome their fears and ensure they are deploying the right technology, through outstanding customer journeys, to best meet their customers’ needs. 

“Throughout 2020, an increasingly difficult UK banking market will put further pressure on profitability.”
– Jonathan Shawcross, Gobeyond Partners

Additionally, 65% of banks also expressed concern about how much changing customer expectations will have on their growth. There was however widespread recognition that customer experience is now seen as a fundamentally strategic issue, with 77% banking respondents agreeing that the priorities in this space should be driven at Group Executive/ Board level. 

With renewed and refreshed challengers such as Virgin Money, TSB & Metro Bank (all under transformed ownership or leadership following difficult periods) and the second major phase of growth coming at Starling and Monzo, there will be even greater competition in the UK and a further need for pace of change, innovation and customer-led thinking across the sector. 

Technology is only part of the answer though and for organisations to win in the race for customer loyalty and stronger profitability, organisations will need to successfully marry great technology and innovation with a major focus on what this means for people – customers, employees and partners – in the transformation journey. Taking this ‘human lens’ will differentiate the quality of solutions offered, drive greater efficiency in getting there and will engage their own people more significantly in the change and in delighting customers. 

2020 will be a huge year in determining who will ultimately succeed and who may not be able to make the scale of changes required in time.