In offering an industry overview David J. Reavy, KPMG’s national sector leader for banking and capital markets, sees a profitable and well-capitalized banking system. Nevertheless, many banks must improve their innovation processes and execution.
In this video, Dave outlines KPMG’s 10 interdependent drivers of change that revolve around improving the customer experience and reducing cost as well as other key initiatives to succeed in the transformation process.
Today I'll provide an overview of the state of the banking industry. This video is the first in a series that KPMG is releasing to highlight the most impactful areas of change within our sector.
The state of the industry is strong. Following the financial crisis and the subsequent recovery, the banking system is now profitable, well capitalized, and better managed than it has been in over a generation, yet the industry is in the process of transforming itself. Although transformation is an imperative, 65% of CEOs in our recent survey said that they need to improve their company's innovation processes and execution, so the desire to rapidly change exists, but execution has been more limited.
Although industry returns on equity have risen dramatically to approximately 12%, returns remain below the pre-crisis levels, and the financial improvements have been largely on the back of significant profit benefits from both tax reform and the extended period of ultra low credit losses. In addition, growing revenue is difficult given the low interest rate environment and declining sources of non-interest revenues. All the while, enabling technologies and digitization are revolutionizing retail experiences and the way companies operate and execute transactions in other industries. Banks have to respond to these forces, and the race is on.
We have identified 10 interdependent drivers that we believe must be addressed in the transformation process. These drivers highlight the areas financial institutions are focusing their transformative activities on customer experience and cost, while people, talent, and culture permeate all the initiatives. The very relevancy of many banks is under pressure as they compete to provide financial experiences that can stack up with what consumers are experiencing elsewhere.
How to execute change will be the focus of the remaining videos in KPMG's series on the state of the industry. Each of the drivers highlighted are the execution focus of many banks. Specifically, we see major projects focus on changing the quality of how banks interact with our customers, often while reducing costs. These projects are wide ranging, but almost always include digitizing operations, improving data and its uses, along with the other initiatives outlined. Banks are even using mergers and acquisitions to achieve their customer experience and cost objectives. Several recently announced mergers of equals are focused on achieving scale to reduce costs while plowing some of the savings into transformative projects to help improve the customer experience.
Please view our other videos which go into further detail on each of these exciting topics.