The coronavirus pandemic has accelerated the digitization of retail banks by 3-4 years, Boston Consulting Group (BCG) experts write in a study. Still, they noted, it is not enough, and retail banks need to fully rethink their expense structure and become 100% digital.

Frank Media has published the most noteworthy excerpts from The Front-to-Back Digital Retail Bank report.

The COVID-19 crisis has already dealt a significant blow to the banking system and it will continue to affect the retail banks’ results in the next few years. Even in an optimistic scenario, retail banks’ revenue will grow by just 2.8%, up to USD 2.59trn, in 2024 as compared to USD 2.25trn in 2019. The modest scenario projects a 1% growth – up to USD 2.37trn in 2024, and the pessimistic one forecasts a 1.1% drop down to USD 2.13% in 2024.

Experts expect the markets of Western Europe and Northern America to experience the biggest decline. The consumer sector will suffer the most, bad lending will restrain growth as well, and low rates will affect both the volume of deposits and the revenue of the banks. Experts also noted that the positive influence of e-commerce is partly negated by the decrease of consumer expenses, especially on expensive good.

At the same time, the pandemic has stimulated clients’ switch from traditional banking channels to the digital ones. BCG experts have calculated that the use of online banking has grown by 23% and the use of mobile banking has grown by 30%. This tendency will carry on after the pandemic as well. BCG expects use of mobile banking to grow by additional 19% and applications to bank offices to drop by further 26% by the end of the pandemic. It is going to enhance the competition between traditional players and neobanks and to require the former to review their approach to expenditure.

The operational expenditure of the most efficient banks is already around 40% lower that of the traditional players, although their staff is 50% smaller, says the report. Traditional banks will find themselves in an unfavorable position competition-wise earlier than they think, experts warn.

The authors of the report recommend these banks to review and digitize the process of product development. For that, they need bold business objectives, a review of interaction with clients, automation of processes, and risk control. According to BCG, all these measures will decrease expenditure by 15-25% and increase revenue by 10-20%, while the consumer loyalty index (Net Promoter Score – NPS) will be able to grow by 20-40 percentage points.

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