Future of Swiss retail banking: challenges and opportunities to 2035

The triggers for the growing regulatory pressure include the CS crisis, the tightening of capital and liquidity requirements since the 2008 financial crisis, cyber risks, data protection and sustainability requirements. On the one hand, banks view regulation positively as a mark of quality that links the expectations of society and financial policymakers to operational requirements and is thus in the interests of the financial center and the individual institutions. However, they are critical of disproportionate regulation and the cost implications.

Proposition 4: ESG initiatives do not generate any material added value for retail banks

There is agreement that ESG or sustainability initiatives have become a standard, but also that sustainability is not a real differentiator and can only be so if it is shown to make a difference at a regional level. An ongoing strong customer need, significant earnings potential and the associated economic value added are largely absent. On the other hand, reputational risks are increasing, particularly since there is no legislative framework in many areas. Banks sometimes feel increasingly pushed into the role of “sustainability policemen”, who are supposed to convince customers of the value of sustainability.

Proposition 5: Traditional business models are no longer a guarantor of success

A further central conclusion of the study is that traditional retail banking remains a successful business model in spite of the challenges. However, this does not take away the need to adapt continuously to banking industry challenges. Banks need to remain agile, for example with regard to macroeconomic developments, revenue diversification, positioning in the financial ecosystem, cost efficient solutions and customer orientation. There is room for improvement compared to other sectors, for example regarding the use of customer data and its analysis – a resource that is still waiting to be tapped.

Proposition 6: New approaches to advice are needed to exploit additional customer revenue potential

Retail banking is seen as down-to-earth and reliable, but needs a breath of fresh air in its approach to providing financial advice. The study came to the conclusion that retail banks should be more proactive in approaching customers, use life events more actively (identifying them in time with the help of data) and support customers through the entire lifecycle. Banks should aim to become the customer’s trusted principal bank. To achieve this, financial advice should offer more holistic added value for the customer; personal communication founded on trust remains crucial. AI will not change this in the short term, but will support client advisors in the background and make processes more efficient.

Proposition 7: Retail banking transformation toward integrated financial services providers is needed to secure customer lifetime value

To achieve long-term customer loyalty, retail banks need to step up the intensity of advice to their customers throughout the entire financial lifecycle. A broader range of retail banking services are centered around life phases and events; financial planning is often mentioned. Matching the offering with customer needs can be difficult, however, because many customers lack basic financial literacy and have to have things explained to them first. Moreover, a broader offering would also make advice and processes more complicated. A look at the insurance sector gives grounds for skepticism about bancassurance: when it comes to tie-ups involving insurance, past failures, the complexity of the business, regulation and a reluctance to cooperate have led retail banks to hesitate.

Proposition 8: Rising expectations of retail banking customer experience increase costs

Customers have high expectations of their interactions with banks. They want the same convenience of other areas of everyday life from banks, as well as availability around the clock on all channels, preferably without interruptions and yet with interoperability – they do not want to be asked the same thing again when switching channels, for example from online to bank advisor. However, implementing all customer preferences is expensive, especially due to outdated and convoluted IT infrastructures. Banks need to maintain a balancing act between fulfilling customer expectations and the efficiency of their operating models. Branches remain very important channels and are central to a high market share in the regions. The ways in which branches are used will continue to be refined.

Proposition 9: Retail banks will increasingly have different levels of vertical integration

The study also came to the conclusion that vertical integration will not decline radically in the coming decade. There is no doubt that processes and the design of the value chain need to be reassessed. However, the banks do not like handing over their own activities to third parties. Although survey participants said there are activities the banks would be willing to consider outsourcing, the fear of risks and of losing control is considerable, and the potential cost savings are often too limited; the customer interface is in any case non-negotiable. Due to the comfortable situation of the retail banks in Switzerland, the pressure to do something is simply too low overall. However, if outsourcing did nevertheless become necessary in the future (e.g., due to a shortage of skilled workers or as a cost efficiency initiative), this would have to be prepared over a prolonged period, as numerous interfaces have to be created.

Proposition 10: New employee profiles will be required to meet future requirements

When it comes to recruiting suitable employees, banks face the challenge of adapting existing job profiles to the future of retail banking. A realignment of job roles is required, especially in technical areas. Continuing to train older employees, and training and developing younger employees will be critical. Demographic change will exacerbate the shortage of qualified staff in the future. In order to remain attractive for talented individuals, banks also have to offer their employees a sense of purpose and good development opportunities alongside flexible working time models.

Probability of disruptive changes

The study also examined how likely the banks taking part in the study think disruptive changes are. In the medium term, the likelihood of disruptive changes is seen as low, with an average probability of 17%. Unsurprisingly, the chances of disruption are seen as higher in the long term, with an average probability of 45%. The survey participants are certain that retail banking will still be around in ten years’ time. Nevertheless, the participants agree that many things are in flux and the banks will have to keep moving to be able to react flexibly to change or even drive change forward themselves.