While the choice of the operating model is crucial, bringing it to life will be even more challenging. The changes will touch on almost every aspect of business and most employees in retail banks.

Doing more with less

As with many industries, digitization will significantly improve operational efficiencies and will inevitably lead to a lower headcount and a different mix of skill sets. Operations will be the most-affected department as it becomes largely automated with straight through processing (STP). Banking models will evolve with certain banks opting to share processing infrastructure with others to reduce overall costs. This will be particularly true where combining undifferentiated activities helps gain scale efficiencies, for example in cash handling or basic KYC processing. Advanced analytics will also increase as it integrates into almost every aspect of retail banking from predictive sales and gauging client price sensitivity to fueling more robust risk models and better managing internal capacities.

As the number of bank branches decreases, staff numbers will also decrease with remaining roles expanding beyond semi-skilled cashiers to skilled advisors. Technical support departments, ironically, will decline by 25 to 30 percent as banks increasingly outsource to technological specialist players. It will be crucial to change the resource mix in order to orchestrate and control the IT platform design and its evolution. Generally, many departments will reduce headcount as automation and predictive analytics lead to greater transparency and data availability (for example, risk management could decline by 10 to 15 percent). While overall headcount will decline, there will be some notable growth areas. Remote advisory, for example, is likely to gain popularity once again as customers increasingly shift to digital channels, leading to banks finally breaking through the longstanding threshold of 10 to 15 percent of customers using this channel.

It’s also important to rethink the IT governance and operating model, consolidating and focusing only on those partners that help the bank reach their operating and business objectives, as significant cost reductions will unlock resources that can then be invested in business model transformation programs. This includes reviewing the vendor base to minimize supply chain risks related to a changing business landscape and improving service levels to meet the new customers’ needs. Meanwhile, it’s important to evaluate existing stratified and stand-alone solutions for new business efficiency, looking for new services and solutions (such as end-to-end investment platforms and powerful advisory tools).

The knowledge and skills that have helped banks get where they are won’t be enough to get them where they need to be

These changes will mean a significant transformation of employee skill sets, requiring a balance between reskilling existing staff for business continuity and a selective onboarding of new talent. Millennials and Gen Z now make up 59 percent of the global workforce and they are driving a more flexible, progressive, and purpose-led working culture and a trend for shorter employment tenures. Like many industries, financial services will also need to move away from hierarchical and matrix structures and adopt flatter, more flexible structures.

In financial services, the people agenda has become a crucial challenge for the boardroom—not just for attracting the best talent, but attracting talent to the financial services industry as a whole. As roles become more technical, banks will not just be competing among themselves but also with technology companies and will need to offer a compelling employee proposition—not just financially but in terms of career progression, learning opportunities, and purpose—to acquire and retain the best talent.

Time to make a decision

Retail banking is always evolving, but we are now witnessing an acceleration of trends—across all industries—forced by the COVID-19 pandemic. It’s no longer just about cost reduction, but a fundamental transformation of the operating model. It’s time for banks to critically evaluate their operating model in order to best position themselves for a more digitized, customer-centric world.

Rather than being everything to every customer, now is the time to choose scale, specialism, becoming fully digitized, or making the transcendent step out of financial services and becoming a lifestyle platform.

The people agenda is a top priority as the business adapts to a new operating model. While headcount reduction is both cost-effective and easy to measure, the biggest focus should be on reskilling existing staff and becoming an attractive employer for both technology specialists and younger generations.

Finally, banks should consider developing their partnership ecosystems—starting in the technology area—to accelerate their shift to a new operating model, something we will explore in our fifth and final article in this year’s European Retail Banking Radar series.