Banks will keep a low profile as they aggressively rebuild
In 2011, we can expect a continued antagonism between the state and banks.
The events of the last few years have required the state to play a larger role in creating stability through bailouts and legislation. Consumers continue to be outraged at banks’ resistance to disclosure and their complicated answers and defense of the status quo. Overall, in many consumers’ minds, the sector appears unwilling to change its attitudes or behaviors. Still, despite public opinion, financial service brands have continued to profit and grow. This and their quick return to pre-downturn bonus culture are evidence that cultural reform may not be required to safeguard shareholder returns. In 2011, expect traditional banks to lie low as the drama continues to play out. Also expect opportunities for genuinely ethical, service and end-user oriented brands to enter the fray.
Banks will become the scapegoat if governments can’t fix economic problems
The legislative framework through which financial services sector gains its license to operate may become more difficult to navigate if the recessionary climate hardens. Politicians are keen to sidestep their own responsibility for the situation and are likely to reframe their own economic mismanagement as the greed of the financial services sector — as the recklessness and misalignment with society in general.
Expect more CEO’s in select committees and punitive reporting requirements of banker bonus allocations. Also expect challenges to the assumption that banks must be profitable and are too big to fail. In 2011, banks will be challenged with making the case to society that they need substantial freedom to operate sufficiently.
Challenger brands will take on the dominant players
With large parts of the retail banking model commoditized and product innovation deemed “not worth it” there is a space in the market for consumer retail oriented banks to enter and differentiate when it come to service. Those that focus on service can steal share from traditional banks that can’t deliver. Expect to see this occur primarily in the developed work world. This challenge will expand out from core banking services based on clients’ requests.
Also expect to see criticism of pan-regional payment brands like Visa and MasterCard. Customers will see fees as too high, share too dominant, and competition as ineffective. As a result, payment methods that claim ease of use will be developed. Innovations linked to web payment and low-cost, peer-to-peer money transfer are also likely.
Basel II driven consolidation will drive out risky activities by banks looking to be bought and decrease local communities’ access to credit
Compliance with new balance sheet stability rules means large, unstable banks will buy and integrate many smaller, less risk-hungry banks to improve their overall asset mix. Unfortunately, the losers here will be small- and medium-sized businesses looking for credit lines. As smaller banks try to avoid looking bad in their quest to attract picky buyers, expect continued frustration from small business folk unable to get credit, expand or start new and risky businesses.
Life insurance companies will be increasingly seen as attractive choices for a wider range of financial services needs
Insurance companies are getting better at presenting themselves as credible suppliers of more financial services products — from savings and mortgages to complex investment products. The blurring of the boundaries in the sector means banks will have to work harder to secure the deposit balances required for lucrative lending. Nevertheless, there continues to be a lack of delivered surplus needs in either sector — personal identity, usage experience or aspiration — leaving the door open for a challenger brand to enter the market.
Banking will continue to be viewed as a dirty business
The bonus culture rolls on, but at what cost? Large investment banks continue to attempt to please and sustain their employees even as general public perceptions grow more negative.
As the world teeters on the edge of another recession, people are wondering, “How come we’re still in their mess and they are back to their old ways? Consequently, bankers are increasingly seen as disconnected and aloof. This threatens the employee proposition at the graduate and middle manager level. Expect lower trust scores, less effective corporate citizenship investments, and less corporate citizenship activities overall.