The 3 forces set to permanently alter banking as we know it, according to industry leaders

New data reveals the megatrends that are keeping banking executives awake at night – and suggests some hidden opportunities, too.

Whilst AI/technological changes and Environmental, Social, and Corporate Governance (ESG) are two critical matters that everyone is aware is impacting all industries globally; it is perhaps a little more surprising that it is the 'Battle of Talent' which is the biggest challenge bank executives face in years ahead. What’s more, these three megatrends are interrelated.

Our research, conducted in partnership with Economist Impact, suggests the banking sector is set for a shake up in the coming decade. And the way leaders respond today could shape the destiny of their institutions tomorrow.

People power will be essential

Meeting the above challenges will require vision, courage and ingenuity. All of which depends upon banks having the right talent at their disposal. But our research suggests that this will be easier said than done.

Securing the necessary talent and skills is the number one challenge that banks will face over the next ten years, according to 42% of surveyed banking and private capital executives (a far higher figure than any other industry we surveyed). Furthermore, many recognised the need for banks to modernise their talent management strategy and practices, including how they reskill existing staff.

This modernisation is vital to establish a culture of innovation among employees and leaders in the years ahead. Such a culture (bolstered by ESG credentials) would help attract and retain talent, and it would provide the perfect platform to leverage technologies, such as AI, to the fullest.

Technology changing the face of banking

Digitalisation has already altered the banking sector in recent years, but the fundamental market structure has shifted relatively little, with incumbent financial institutions remaining dominant. However, that could be set to change.

Fintechs and, potentially, big technology companies are developing capabilities to reach diverse consumer and business banking segments. And executives in our survey say they expect open banking to have an increasing impact in the years ahead. All of which means incumbent banks and their digital challengers will increasingly have to compete for control of customer relationships.

The winners in this competition are likely to be those who can harness technology to provide highly personalised products and services to a range of customer segments. When we asked industry chiefs which market development is set to have the biggest impact on banking business, artificial intelligence (AI) topped the list (38%). Through hyper-personalisation, AI offers the tantalising opportunity for banks to boost efficiency and improve customer experience. However, that won’t be possible without modernising IT processes and infrastructure first.

Stepping up to meet ESG regulations

After the hyper-personalisation of services, the second biggest impact on banking businesses will be complying with elevated ESG standards (37%), according to the leaders we surveyed. While the changing regulatory environment is undoubtedly challenging, it presents potential upsides, too.

The net zero transition offers attractive investment prospects, for example in renewable energy and energy transition projects. And, by meeting or exceeding regulatory requirements, the industry can demonstrate leadership in tackling climate change. By improving their sustainability credentials, banks can make themselves more attractive propositions for customers, investors, and prospective new hires as well. Which brings us to the issue of talent.

In other words, the three megatrends highlighted by banking executives – talent, technology, and ESG– are interdependent. How leaders respond will do much to determine which institutions emerge as winners and losers in the banking landscape of the future.

Read Ashurst’s full report and survey findings on the megatrends shaping the banking industry.