Extracts from KPMG’s report “Future of retail banking” published on the website of Frank Media.

The banking sector is undergoing active changes: in order to remain profitable, banks need to consider changes to their business models. In the future, banks may succeed by choosing one of three models.

Universal banks

Universal bank margins are being squeezed on both ends, with high operating costs and downward pressure on transaction fees and interest income. Consequently, universal banks need to be data driven and develop ecosystems of their own drawing on their large customer base. The ability to utilize transaction data will be key to this, to enable a deeper understanding of customer behavior and opportunities to support them.

Universal banks will retain some of their branch network, whether to serve high margin customer segments that desire in-person interaction, or rural communities that lack digital proficiency and access. Despite this, the operating model will need to be as automated as possible to drive cost efficiency.

Transaction-focused banks

Transaction-focused banks are primarily payment service providers by nature. They are heavily focused on unit economics, having to ensure that the unit cost of transactions can be covered by revenue to guarantee sustained profitability. The success of these banks will be facilitated by open banking - which could also enable big tech companies to take a slice of the action and perform an increasing number of banking transactions for their customers.

Ambient banks

Ambient banks don’t act as standalone entities, but rather are the ‘invisible’ agents embedded within every day Internet of Things (IoT) devices to facilitate transactions. Having access to data from many IOT devices also will give the bank a deeper understanding of customers’ spending habits and credit needs. The ambient bank is an enabler of ecosystems such as those of Samsung and Microsoft. Some traditional banks are exploring the ambient bank model.

KPMG offers retails banks 8 steps to develop their business.

- Harness data, advanced analytics, and actionable insights with a real-time understanding of the customer and the business to shape integrated business decisions.

- Operate the business with efficiency and agility to fulfill the customer promise in a consistent and profitable way.

- Engage, integrate, and manage third parties to increase speed-to-market, reduce costs, mitigate risk, and close capability gaps to deliver the customer promise.

- Create intelligent and agile services, technologies, and platforms, enabling the customer agenda with solutions that are secure, scalable, and cost-effective.

- Build a customer-centric organization and culture that inspires people to deliver on the customer promise and drive up business performance.

- Develop compelling customer value propositions on price, products, and services to engage the most attractive customers and drive profitable growth.

- Design a flawless customer experience.

- Interact and transact with customers and prospects across marketing, sales, and service and achieve measurable results.

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