At the heart of the scandal is the stress managers were under to reach [unrealistic] sales targets. Former employees speak of relentless pressure and increasing quotas as the cause for their actions.
Consider an alternative and worrying perspective: one that involves a fast changing landscape, reluctance to change, unmet consumer demands and the resulting revenue declines
Under this scenario, many banks have the potential to be the next Wells Fargo, as they struggle to grow business in very challenging times.
Since the Financial Crisis in 2008, banks have faced a series of obstacles that have challenged their profit centres. Stricter regulations, capital allocation requirements and a low interest rate environment have led to reduced revenues while cost reduction programs have led to increasing branch closures. The side effect of these closures (and lost profits) is now coming to light.
According to Federal Deposit Insurance Corp. data, after decades of steady growth, bank branches have declined more than 6% since 2009.
According to financial research firm Keefe, Bruyette & Woods, up to half of all U.S. bank branches cold close over the next decade
Changing Customer behaviour
As increasing consumers move to mobile banking and alternative financing options, traffic in branches has steadily decreased. Historically, branch managers would cross-sell products to clients walking through their doors, but those clients are staying away.
Even more discouraging for branch managers is the fact that this migration is still in its infancy and expected to continue:
“The number of digital converts is still growing. In 2015, a whopping 25 million Americans started banking remotely for the first time,” says research firm Javelin.
Changing Customer Preferences
Consumers have become digitally savvy and seek efficiency, speed and convenience in all aspects of their lives, including banking. They expect an omnichannel banking experience similar to the experiences offered by tech giants like Amazon and Apple. Banks, though initially slow to react, are beginning to realise their business models and delivery methods will need to adapt, or they stand then realistic prospect of losing customers and associated revenues.
Omnichannel banking will provide consistent interactions with the banking brand across various touch points. Through analysis of client information, banks can build an accurate picture of client’s behaviors and preferences, enabling them to anticipate and satisfy client needs.
Online platforms are emerging to respond to customer needs, offering a plethora of banking services in innovative forms. As a result, companies like Lending Club and Quicken Loans have siphoned large number of clients from traditional banks in recent years.
Growing Competition from NonBank Providers
Consider the traditional mortgage business. Wells Fargo remains the largest mortgage originator in the U.S., but has been losing market share to online platforms. Quicken Loans is now ranked #3 for mortgage originations and other online lenders own a growing proportion of these loans:
- From 2014 to 2015, banks lost 4% of their total mortgage market share (from 47% to 43%).
- Nonbank lenders accounted for 48% of mortgage originations.
- Credit unions made up the remaining 9% of originations.
The rapid growth of online providers offering core financial services is proof that, just like in many other industries, the battleground for revenue growth and customers will be on platforms.
The future is yet to be written
It could be argued that had Wells Fargo acknowledged the changing banking landscape sooner and changed, this scandal could have been avoided. Profit losses from failing businesses (branches) could have been compensated by growing businesses such as those offered by emerging competitors.
Despite growing competition in the marketplace, banks still have a key advantage: vast amounts of data and millions of existing customers
Through Data Analytics and Machine Learning techniques, banks will mine insights and from it, create compelling propositions. This must be met with a focus on meeting and exceeding customer demands to remain competitive.
As the banking industry peers shyly at digital transformation, they will be forced to reassess how best to meet consumer demands and implement creative solutions. It will be in satisfying customer needs that banks will retain and grow their business; that is their path to continued success.
Grow Advisors, North America & Canada
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