Study: Retail banks expect margins to fall in the long term
Published: Thursday, Sep 19th 2024, 06:20
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Retail banks in Switzerland expect interest margins to shrink again in the coming years. However, the institutions do not foresee any fundamental upheavals in their sector in the medium term, according to the "Retail Banks Study 2035" published on Thursday by the consulting firm EY.
Despite the recent easing of interest margins, more than two thirds (69 percent) of the 33 Swiss retail banks surveyed as part of the study expect a gradual erosion of margins, as EY writes.
This will be driven by the central banks' expected return to a loose monetary policy. In addition, there will be increased competition from both established market participants and non-banks, as well as rising IT costs and regulatory costs.
Still a feel-good zone
Nevertheless, margins still have a "comfortable crumple zone", writes EY in the study. The institutions also consider the probability of "disruptive changes" in retail banking in the medium term to be low. "Switzerland is still a feel-good oasis for retail banking with room for (almost) everyone," says study co-author Markus Schmid, professor at the University of St. Gallen.
The majority of banks agreed with the thesis that innovative technologies are likely to intensify competition. However, fintech or "big tech" companies are seen as catalysts for innovation and not as direct competitors - as long as they do not take control of the customer interface, according to EY. The Swiss market is not interesting enough for tech multinationals anyway due to its small size. In addition, the regulatory hurdles make market entry more difficult.
Traditional business model
The traditional retail banking business model remains a guarantee of success for almost two thirds of the institutions surveyed: at their core, banks remain the point of contact for financing, saving and investing. Nevertheless, a clear majority agree with the thesis that new advisory approaches are needed: retail banks need to approach customers more proactively and "accompany them throughout the entire life cycle", they say.
Despite online channels and round-the-clock availability, stores are likely to retain their importance in the coming years. They are important not least for a high market share in the regions, it is said. At the same time, however, expectations of the "customer experience" are high. For example, they do not want to be asked the same questions again if they switch channels from online to a bank advisor. In the opinion of a majority of banks, high customer expectations are likely to lead to rising costs.
Sustainability without added value
The banks also show little enthusiasm for sustainability initiatives. A majority of institutions (57%) do not see a strong customer need and cannot recognize any economic added value. On the other hand, reputational risks are increasing due to higher regulatory requirements and social expectations, according to the report.
Banks even feel increasingly forced into the role of "sustainability policeman" and are bothered by the fact that they are supposed to pursue climate policy with customers' money, it is said. Two thirds of the banks surveyed see the greatest challenge in the preparation of sustainability reports, especially as these are hardly informative.
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