View in article, Julie Bernard, Deborah Golden, and Mark Nicholson, Reshaping the cybersecurity landscape: How digitization and the COVID-19 pandemic are accelerating cybersecurity needs at many large financial institutions, Deloitte Insights, July 24, 2020. And more integration and acquisition of FinTech firms. Given their unique and vital role in the global economy, banks should be at the forefront of leading social change and mitigating climate risk by reallocating capital, enhancing risk frameworks, providing greater transparency, and improving data and reporting standards. The basic rationale for M&A may remain the same as in recent years, but pandemic economics have altered the catalysts and inhibitors. Survey respondents were asked to share their opinions on how their organizations have adapted to the varied impacts of the pandemic on their workforce, operations, technology, and culture. New team structures should be tied directly to how work gets done. Additionally, the technology function should play a critical role in banks’ structural cost transformation efforts. In this regard, technology’s true power—its ability to reshape risk frameworks in more meaningful ways—has yet to fully be realized. Although detection processes and first-line responses have become quite sophisticated, there is room for further efficiencies through automation. Banks should take a leadership role, and continue to engage with regulators, industry organizations, clients, and counterparties to build a robust, pervasive, and persistent sustainable finance agenda going forward. But acknowledging the elephant in the room, here are 10 issues, trends, and innovations that experts expect to have the biggest impact on the banking industry in 2021 … (For more information about our survey, see "Survey methodology.") Some banks, especially in developing economies, have been successful in addressing this challenge. Roughly eight in 10 use a smartphone and/or desktop/laptop to complete banking activities. The banking industry will confront a range of challenges in 2021, many ongoing, but also some new obstacles. View in article, Nathan Stovall, “Banks left with pockets full of cash and few places to go,” S&P Global Market Intelligence, September 30, 2020. Previously, he was a member of the US and Global Finance Transformation leadership team focused on delivering and advising on large scale change agenda for the CFO, CRO, and CDO within financial services. Our 2021 regulatory outlooks explore key issues that could have a significant impact on the market and your business in 2021. Forget Where’s Wally, Where’s Jack? At the same time, the uncertain macroeconomic picture puts the focus on maintaining/enhancing cyber defense capabilities at stable or lower budgets, forcing more intense prioritization. 2021 Financial services industry outlooks, Visit the Within reach? Banks effectively deployed technology and demonstrated unprecedented agility and resilience. LoB leaders should be empowered to determine where their energy and resources should be focused. In the initial phase of the pandemic, banks tightened lending standards. This is especially true for respondents in North America, at 56%, and Asia-Pacific, at 61%. The net impact of these megatrends, combined with macroeconomic realities such as the low-interest rate environment in the decade ahead, should fundamentally reconfigure the banking industry. Traditional constructs and friction were dismantled in favor of clarity and agility. In addition to helping allocate or redirect capital toward economic activities that are net positive to societies, they can also nudge new behaviors among clients and counterparties. Other factors, such as political and regulatory uncertainty and changes to tax regimes, may loom large. However, evidence suggests that increased digital engagement does not necessarily translate into increased satisfaction. But the pandemic turbocharged digital adoption across products and demographic segments. View in article, John Celi et al., Finance and the future of IT: Funding innovation at the speed of agile, Deloitte Insights, January 15, 2020. 5. Get the Deloitte Insights app. Societies around the world now expect banks to help address income inequality, racial and gender inequity, and climate change. View in article, Foresight Research, “Expect a spike in consumers switching banking providers due to the pandemic,” October 21, 2020. What is even more impressive is the spike in digital sales—the holy grail in digital banking. For instance, at Standard Chartered, retail banking digital sales grew 50% year-on-year in H1 2020.20. To fully realize the digital promise in the front office, banks should elevate customer engagement by deploying an optimal mix of digital and human interactions, intelligent use of data, novel partnerships, and compelling service delivery models. While uncertainty around large-scale vaccine availability persists, over the next few months, talent functions will be busy crafting safe return-to-workplace strategies. While customer experience can be tricky to quantify, client turnover is substantial, and client loyalty is rapidly becoming an endangered idea. View in article, Erica Volini et al., Returning to work in the future of work: Embracing purpose, potential, perspective, and possibility during COVID-19, Deloitte Insights, May 15, 2020. Banking industry consolidation could kick into high gear. 06 January 2021 Natasha McSwiggan. One-third of respondents indicated their firms are planning to do so. This expanded discipline should also include the role of new standards such as CECL. But at the same time, they should maintain a focus on employee well-being and productivity as the pandemic-induced stress on the workforce continues. In these and other customer interactions, banks should be sure to maintain the human touch. View in article, J.D. Global investment banks outlook ‘stable’ for 2021 Marie Kemplay Monday, 4 January 2021 The world’s largest investment banks are in a relatively strong position to handle any further economic headwinds, according to Moody's. Banks can play a leadership role in driving the sustainable finance agenda but will need to engage with other institutions to solve the many problems in this area. CROs must ensure that climate risks are integrated into their risk management frameworks and practices and more directly embedded into stress-testing exercises. Establishing new talent models should facilitate flexible, self-organizing teams that come together for a common purpose. Until the pandemic hit, almost everyone believed certain societal forces were here to stay, such as the sharing economy, urbanization, and globalization. Forced to respond to some exacting realities, banks learned valuable lessons in the early months of the pandemic. However, the first half of 2020 exposed vulnerabilities in banks’ technology arsenals. The world is beset with unprecedented challenges. As the pandemic continues and uncertainties remain, bank leaders should continue to proactively recognize employee concerns, be sensitive to their personal/family needs, and prioritize physical and psychological health efforts that can also help maintain employee productivity. ‎Show Banking Transformed with Jim Marous, Ep How Will Banking Evolve as We Enter 2021? View in article, Commodity Futures Trading Commission, Managing climate risk in the US financial system, September 2020. We have seen nothing short of the start of a boom in fintech M&A this year. Increasingly, banks can deploy managed services to cut costs for critical but less-differentiating activities. Discover Deloitte and learn more about our people and culture. Regulators were also keen to receive more detailed and frequent reporting from banks on the various risks they were facing. View in article, Institute of International Finance, “IIF/UNEP-FI TCFD report playbook,” September 2020; World Economic Forum, The net-zero challenge: Global climate action at a crossroads (part 1), December 2019; UNEP Finance Initiative, “TCFD – Task force on climate-related financial disclosures,” accessed October 26, 2020. The World Bank also sees this upward trend continuing in 2021. We serve our clients locally, while drawing upon the firm’s considerable global resources and industry expertise. Indeed, our respondents indicate spending on cloud will increase over the next year. The robust capital levels banks had built up over the past decade reduced near-term stress, and deposit inflows and government support of capital markets minimized liquidity concerns. View in article, J.D. View in article, Includes respondents who significantly agree, agree, and somewhat agree. In addition to data quality and governance, another challenge is the prevalence of deficiencies in risk control design and architecture. But this should not prevent bank leaders from reimagining the future and making bold bets. There are lots and lots and lots of reports and predictions for 2021 in banking. At the same time, banks should continue to invest in digital, customer-facing technology to provide the seamless experience the industry has been seeking for a while. Insider risk is also increasing because of the psychological stress employees are likely to face as the pandemic continues.49. See Terms of Use for more information. Shortage of skilled talent in the cyber risk area often remains another obstacle, especially for smaller institutions. But exploring solutions to maintain productivity levels in a remote work environment will be crucial. More specifically, in a recent Deloitte-FS-ISAC benchmarking survey,50 access control, data security, and detection processes were highlighted as the top investment priorities for financial institutions. 1. Generally, these losses are smaller than during the GFC, when US banks recorded a loss ratio of 6.6% from 2008 to 2010. Respondents were equally distributed among three regions—North America (the United States and Canada), Europe (the United Kingdom, France, Germany, and Switzerland), and Asia-Pacific (Australia, China, Hong Kong SAR, and Japan). View in article, The Economist, “How the digital surge will reshape finance,” October 2020. Increased regulatory scrutiny on security and privacy, and migration to the cloud are amplifying this challenge. Some banks could also be conducting layoffs to rationalize costs. DTTL and each of its member firms are legally separate and independent entities. These new assumptions and risk assessments should be more directly embedded into stress-testing exercises. The economic damage from the pandemic is self-evident. View in article, Beena Ammanath, Susanne Hupfer, and David Jarvis, Thriving in the era of pervasive AI: Deloitte’s State of AI in the Enterprise, 3rd Edition, Deloitte Insights, July 14, 2020. Our banking risk experts provide insight into the regional events impacting the financial sector in emerging markets in 2021. Despite some hiccups, many banking operations were executed smoothly. But these efforts cannot happen without establishing more robust and accurate planning and forecasting,43 which may include modeling the pandemic’s impacts on markets, customers, and counterparties to construct a broader view of potential impacts and actionable insights.44 Pushing financial planning and analysis processes into business units should improve granularity and accuracy.45 However, using current legacy infrastructure in these endeavors may be challenging for many banks. Undoubtedly, agility goes hand in hand with resilience. AI should be embedded/combined with other technologies, such as cloud, IoT, 5G, and distributed ledger, to create multiplicative value. Controls with poor supervision, self-assurance, and validation, with unclear responsibilities between the first and second lines, still remain. The imperative for self-sovereign identification (get lost Equifax). The report includes favored sectors and the full economic and investment forecast for 2021. To fully realize the digital promise in the front office, banks can elevate customer engagement by deploying an optimal mix of digital and human interactions, intelligent use of data, novel partnerships, and compelling service delivery models. The one I liked the best is the report from Standard & Poor’s (S&P, see end of blog) about the impact of the crisis in 2020 and the outlook for banking in 2021. As of Q2 2020, the top 100 US banks had provisioned US$103.4 billion, in contrast to US$62.5 billion for the top 100 European banks and US$68.8 billion for the top 100 banks in Asia-Pacific (figure 1). COVID-19 inflicted enormous stress on banks’ operations, and there were hiccups at some institutions. See the digital banking industry trends of 2021. Simply select text and choose how to share it: 2021 banking and capital markets outlook At the behest of the International Business Council, the World Economic Forum collaborated with Deloitte and the other Big 4 accounting firms to develop a set of common metrics to monitor progress in stakeholder capitalism, which also includes climate change.7. Chief operating officers may also need to challenge cost management orthodoxies, such as outsourcing noncore activities or using technology to do traditional manual tasks. Meanwhile, one-third of respondents indicated their banks may also look at rationalizing assets or divesting noncore operations. Some banks have already demonstrated leadership in multiple ways, but most crucially, through financial commitments. And the world of ultraprivate equity will continue to grow with a focus on the industries that have been vital to establishing and maintaining our new normal. Title: Investment Outlook - Q1 2021 - Recovering and Rebuilding - Transcript Author: Miranda SPIRO Subject: Investment Outlook - Q1 2021 - Recovering and Rebuilding Created Date: Global GDP growth was waning, but the pandemic exacerbated the slowdown. It is hard to say what the exact implications of COVID-19 will be on how work might evolve. Going forward, strengthening operational resilience will likely be a main challenge many banks face.34 While there’s no silver bullet, banks could reassess their global footprint and dependence on third parties, conduct more frequent simulation exercises, and improve information systems to respond quickly to future events. Banks cannot solve many of these intractable problems on their own. U.S. Bank rolls out new branch formats for digital age. While banking seems to be changing, so does the purpose of banks. We also asked about their investment priorities and anticipated structural changes in the year ahead, as they pivot from recovery to the future. Power finds, Expect a spike in consumers switching banking providers due to the pandemic, How BBVA built a snowball to increase digital sales in Spain, It’s time to future-proof your workforce for the digital era: Citi's Joel Fastenberg, Operational resilience: Impact tolerances for important business services, OCC highlights key risks for federal banking system. Lastly, chief technology officers, along with other C-suite executives, should ask how far, how deep, and how wide digital transformation should go to help banks achieve their long-term goals. Banks can institutionalize the lessons learned during the pandemic. These may include operating with agility, flattening hierarchies, speeding up decision-making, empowering employees, and introducing flexible workplaces and workforces. Ensuring only authorized users have access, assigning different privileges, and protecting customers from fraud, identity theft, and privacy abuses, while providing a seamless experience, is easier said than done. View in article, Tim Adams et al. The pandemic drew attention to well-being like never before: Most executives surveyed (80%) said their company was increasing focus on safety and well-being. The new parameters brought existing risks, such as business continuity planning and conduct risk, into greater focus. Together with AI, these solutions could also improve resilience by boosting cashflow forecast accuracy. Moreover, as the finance function becomes more analytics-driven, new skills will likely be required in data science and coding. View in article, Sanne Wass, “Banks raise concern over insider threats as pandemic takes toll on mental health,” S&P Global Market Intelligence, October 26, 2020. Conduct risk, for instance, remains a potent threat. It should also play a fundamental role in improving productivity in a virtual environment, boosting learning, creating flexible teams, sharing knowledge, making information flows efficient, and promoting new forms of collaboration across the organization. In this regard, robust identity governance and administration and next-generation authentication through password-less experience are considered effective solutions. Power finds,” September 1, 2020. Ultimately, the impacts of climate risk are not just social or reputational, but financial as well. But achieving sound data integrity across the risk control framework still seems easier said than done. They should institutionalize the lessons from the pandemic and build a new playbook by strengthening resilience now and accelerating the transformation in the postpandemic world. It could be a precursor to what one might see more broadly in the future.27. Workplace redesign should also be a key focus as institutions strike the right balance between the workplace and virtual/remote arrangements, based on the specific needs of various roles/jobs. Forget Where’s Wally, Where’s Jack? Unfortunately, though, banks could be hard-pressed to put this cash to work due to ample deposits and limited options for attractive yields.42. She is a Vice Chairman of Deloitte UK and the global lead client service partner for a major financial services organisation. One-half of respondents said their institutions’ inclination to outsource has somewhat or significantly increased during the pandemic, while about 40% indicated a decline in their institution’s intent to build or buy (figure 8). This may build in some redundancy, but it would help reduce operational risks. First and foremost, traditional revenue sources and business growth in established segments will likely be moderate at best, which would force banks to find new pathways to profitable growth. Nearly 70% of Chase customers, and 60% of non-Chase customers, completely or somewhat agree that they feel confident about the safety and security of making payments through digital apps or sending money through peer-to-peer apps. Citigroup, for example, is training its managers to care for employees’ physical and emotional well-being, whether they work from home or in the office.28. Also, hyperpersonalized services that can factor in a customer’s financial well-being holistically should form the core of customer relationships. Chase recently released the results of its Digital Banking Attitudes Study, which revealed Americans have largely adjusted to—and are ready for—a primarily digital banking environment: Add to this that, in the two years prior to the pandemic, the number of customers leaving their financial institution for another was around 12%—whereas this survey suggests it will jump to 27% for large banks between 2020 and 2022. 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