The British Bankers’ Association held its International Banking Conference yesterday, and representatives of banks from the largest to the smallest aired their views on the future of the industry, in the UK and abroad. As one would expect, the industry put on a cheerful face – and UK banks at least had real reason to be cheerful, after the competition regulator said yesterday it would stop well short of recommending that the big retail banks be broken up.
But threats to the industry are widely acknowledged, and the sheer number of new factors under discussion speak eloquently of the challenge established players face. From new market entrants, to mobile payments, to regulation, there is seemingly no end to the perils at hand. Even though some long-mooted regulatory changes have been watered down, new ones continue to be announced, and new technologies emerge at a rapid pace.
The regulator’s report this week showed that only a tiny minority of retail bank customers have taken advantage of measures to make it easier to change accounts – but research released separately demonstrated that bank branches continue to disappear from high streets. This suggests that customers are sticking with established banks as technology advances, but that is no cause for complacency. After all, the day may come soon when it will be easy to manage one’s personal finances without a bank account at all – few may want to, but it would be wrong to rely on that assumption.
On the investment side of the industry, many column inches this week have been devoted to the supposed ‘retreat’ of European banks from investment banking – with the Economist publishing data showing a widening gap with US banks, and the Financial Times comparing the rout to Napoleon’s withdrawal from Russia. This is not just a matter of concern for the industry itself, but for the wider business community. There is strength as well as inefficiency in Europe’s complex, but vibrant, patchwork of national markets, and as the region begins to grow again, it will need banks that can help their clients navigate that. In countries where the state is closely involved in commerce, a locally headquartered bank may have advantages that a foreign institution cannot aspire to.
Healthy banks are the foundation of healthy economy, and that is true of both retail and investing institutions. The key in both cases is for banks to be less reactive – to regulation, technology and competition – and instead to proactively define the real drivers of value in their organisation, and identify the actions needed to enhance profitability and develop durable market positions. It may be that, for some, retreat in some areas is a prudent option, but banking is a hugely diverse industry, and banks are diverse institutions – that diversity ought to offer many opportunities for growth. To take them, banks must play to their strengths but, in such a complex industry, areas of strength are not always where they at first appear. To thrive, banks need to rigorously analyse both current circumstances and future scenarios, exploring new areas of potential growth and developing realistic strategies to exploit them.