Distribution 2020: The Next Big Journey for Retail Banks

By Andy MaguireJean-Werner de T’SerclaesStefano Bison, and Nicole Mönter

In the wake of the financial crisis, profitability pressures and changing consumer behaviors are driving a fundamental review of retail-bank distribution assets. Return on equity (ROE) in the banking industry has dropped sharply from approximately 20 percent in the years leading up to the crisis to just over 10 percent now in developed markets. With distribution representing approximately 50 percent of total costs in these markets, it is clear that retail banks must broadly rethink their distribution strategies in order to adapt to the evolving landscape and changing customer needs.

And customers’ needs—as well as their banking habits—are indeed shifting. First, interactions with banks increasingly reflect the broad global trend toward more online and mobile communication. Customer contacts with branches are decreasing at an annual rate of about 1 to 3 percent in most developed markets. Second, customers continue to grow more sophisticated and demanding, influenced not only by their interactions with banks but also by their experiences in other industries.

A recent study by The Boston Consulting Group, as well as our experience advising leading financial institutions, shows that “Distribution 2020” is a top-three topic for many banks, particularly in response to changing client behavior, and it has highest priority in developed markets. Banks need to think now about what retail banking will look like in 2020 and navigate their way toward a better distribution model.