2021 Banking and Capital Markets Outlook Strengthening Resilience Accelerating Transformation5393
2021 Banking and Capital Markets Outlook Strengthening Resilience Accelerating Transformation5393
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Contents
Endnotes33
2021 banking and capital markets outlook
KEY MESSAGES
• Banks will need to enhance resilience across capital, technology, and talent, as they
confront potential new challenges in the short term. Longer term, banks should
accelerate and amplify their transformation efforts across the enterprise.
• Banks can institutionalize the lessons learned during the pandemic. These may include
operating with agility, flattening hierarchies, speeding up decision-making,
empowering employees, and introducing flexible workplaces and workforces. Future
success may very well hinge on how well these lessons have been internalized
and implemented.
• COVID-19 not only accelerated digital adoption, but it has also been a litmus test for
banks’ digital infrastructures. Institutions that made strategic investments in
technology came out stronger, but laggards may still be able to leapfrog if they take
swift action to accelerate tech modernization. Across the board, digital inertia has
faded, and more banks are pursuing technology-driven transformation, especially to
core systems.
• To fully realize the digital promise in the front office, banks can elevate customer
engagement by deploying an optimal mix of digital and human interactions, intelligent
use of data, novel partnerships, and compelling service delivery models.
• As banks adapt to the economic realities of 2021, they may need to make some hard
decisions on the optimal talent models. But at the same time, they should maintain a
focus on employee well-being and productivity as the pandemic-induced stress on the
workforce continues.
2
Strengthening resilience, accelerating transformation
T
HE BANKING INDUSTRY’S collective digitization in almost every sphere of banking and
response to the pandemic thus far has been capital markets.
notable. It was no easy feat to go fully virtual
and execute an untested operating model in a Some of these forces were already in motion before
matter of weeks. Despite some hiccups, many COVID-19. Global GDP growth was waning, but
banking operations were executed smoothly. the pandemic exacerbated the slowdown. The
Customers were served, employees were International Monetary Fund (IMF) expects global
productive, and regulators were reassured. Banks GDP to decline by 4.4%,1 or almost US$6.2 trillion
effectively deployed technology and demonstrated in 2020.2 Despite a possible rebound in 2021,
unprecedented agility and resilience. global GDP could still be US$9.3 trillion lower than
what was expected a year ago. This drastic
More importantly, banks played a crucial part in contraction in the global economy has already
stabilizing the economy and transmitting meaningfully diminished loan growth and payment
government stimulus and relief programs in the transaction volumes. These declines have been
United States, Canada, the United Kingdom, Japan, largely offset by near-record levels of trading
and many European countries, among others. revenues and wealth management fees. But as the
Banks’ healthy capital levels before the pandemic pandemic continues, banks will likely be
also helped mitigate the negative impacts from the confronted with a greater share of distressed assets
crisis and should pave the way for the global on their books.
economy to thrive in the future.
For the banking industry, the economic COVID-19 is reshaping the global
consequences of the pandemic are not on
the same scale as those during the Global
banking industry on a number of
Financial Crisis of 2008–10 (GFC), but they dimensions, ushering in a new
are still notable. In addition to the financial
fallout, COVID-19 is reshaping the global
competitive landscape, stifling
banking industry on a number of growth in some traditional
dimensions, ushering in a new competitive
landscape, stifling growth in some product areas, prompting a
traditional product areas, prompting a new
wave of innovation, recasting the role of
new wave of innovation, and
branches, and of course, accelerating accelerating digitization.
3
2021 banking and capital markets outlook
How bad could it loans. Generally, these losses are smaller than
get for banks? during the GFC, when US banks recorded a loss
ratio of 6.6% from 2008 to 2010.4
The Deloitte Center for Financial Services
estimates that the US banking industry may have As of Q2 2020, the top 100 US banks had
to provision for a total of US$318 billion in net provisioned US$103.4 billion, in contrast to
loan losses from 2020 to 2022, representing 3.2% US$62.5 billion for the top 100 European banks
of loans.3 While losses can be expected in every and US$68.8 billion for the top 100 banks in
loan category, they may be most acute within credit Asia-Pacific (figure 1).
cards, commercial real estate, and small business
FIGURE 1
64.2
55.7
50.1
47.7 35.2
33.6 32.7
20.6
29.8
16.7
11.8
9.7
4
Strengthening resilience, accelerating transformation
FIGURE 2
18.0%
14.0%
10.0%
6.0%
2.0%
-2.0%
20 20
06 07 08 09 10 11 12 13 14 15 16 17 18 19 1 20 2 20 020 021 022
20 20 20 20 20 20 20 20 20 20 20 20 20 20 Q Q 2 2 2
Note: Deloitte’s forecasts on the US banking industry includes all US commercial banks. Broker forecasts are based on top
100 largest banks per region. Estimates are as of October 12, 2020.
Source: The Deloitte Center for Financial Services analysis, Thomson Reuters Eikon broker forecasts.
5
2021 banking and capital markets outlook
FIGURE 3
Digitization
Social distancing has already driven further adoption of contactless technologies
and digital experiences.
Corporate responsibility
Taking steps to do the right thing in the COVID-19 context is becoming table stakes
for consumers. The larger purpose of banks is changing.
Urbanization
While urbanization has been growing steadily, social distancing and rising fears of
contagion may reduce the likelihood of people living and working in major cities.
6
Strengthening resilience, accelerating transformation
But to fully realize the digital promise in the front vital engines of growth in the global economy
office, banks should use various levers to elevate through a multitude of roles—financial market
customer engagement. These can include creating intermediaries, asset owners, investors,
an optimal mix of digital and human interactions, and employers.
using data intelligently, establishing novel
partnerships, and deploying compelling service
delivery models. Banks have a critical role to
The net impact of these megatrends, combined
play in sustainable finance.
with macroeconomic realities such as the low- In addition to helping
interest rate environment in the decade ahead,
should fundamentally reconfigure the banking
allocate or redirect capital
industry. First and foremost, traditional revenue toward economic activities
sources and business growth in established
segments will likely be moderate at best, which
that are net positive to
would force banks to find new pathways to societies, they can also
profitable growth. Second, scale, more than ever,
could become critical as profitability pressure will nudge new behaviors among
put costs into greater focus. And third, advanced
technology is expected to be at the heart of
clients and counterparties.
everything banks do.
While some unique challenges remain—the lack of
The economic damage from the pandemic is self- common global standards, insufficient data, and
evident. Unemployment rates around the world unclear metrics to assess sustainability
could remain at elevated levels for the foreseeable performance and outcomes—these issues are
future. As a result, there could be a striking growth starting to be addressed. At the behest of the
in global poverty, with as many as 150 million International Business Council, the World
people pushed into “extreme poverty” by 2021.6 Economic Forum collaborated with Deloitte and
There are already signs of worsening income the other Big 4 accounting firms to develop a set
inequality and a growing number of women of common metrics to monitor progress in
dropping out of the workforce. stakeholder capitalism, which also includes
climate change.7
Banking with a purpose Banks can play a leadership role in driving the
sustainable finance agenda but will need to engage
While banking seems to be changing, so does the with other institutions to solve the many problems
purpose of banks. Societies around the world now in this area.
expect banks to help address income inequality,
racial and gender inequity, and climate change. As
7
2021 banking and capital markets outlook
8
Strengthening resilience, accelerating transformation
FIGURE 4
Source: The Deloitte Center for Financial Services Global Outlook Survey 2020.
Deloitte Insights | deloitte.com/insights
The banking industry will confront a range of from reimagining the future and making bold bets.
challenges in 2021, many ongoing, but also some They should institutionalize the lessons from the
new obstacles. Uncertainty about the effects of the pandemic and build a new playbook by
pandemic will likely remain for the foreseeable strengthening resilience now and accelerating the
future. But this should not prevent bank leaders transformation in the postpandemic world.
9
2021 banking and capital markets outlook
Sustainable finance
A unique opportunity for inspiring leadership
T
HE WORLD IS beset with unprecedented Trading Commission urged financial market
challenges. The pandemic is perhaps the most participants to “move urgently and decisively to
formidable test right now, but income, racial, measure, understand, and address …[climate]
and gender inequities, along with persistent risks risks.”10 Similarly, the European Central Bank now
from climate change, are no less daunting. Banks expects banks “to integrate climate and
have embraced their social purpose with a new environmental risks in business strategy,
energy and focus: how best to contribute to a more governance, risk management and disclosure.”11
equitable and sustainable society.
There are also new laws in the works, such as the
As vital engines of growth in the global economy Climate Change Financial Risk Act introduced in
through their multitude of roles—financial market the US Senate in November 2019, which calls for
intermediaries, asset owners, investors, and the US Federal Reserve to help develop climate risk
employers—banks have a critical role to play in stress-test scenarios.12
sustainable finance. Banks can help reallocate
capital toward economic activities that are net Similarly, various industry entities, such as the
positive to societies. They can also nudge new Institute of International Finance, the World
behaviors among clients and counterparties. Economic Forum (WEF), the Task Force on
Climate-Related Financial Disclosures, and the
Many banks are embracing this growing power and Partnership for Carbon Accounting Financials,
influence and have been strengthening (PCAF) have also proposed structural changes to
environmental, social, and governance (ESG) climate risk standards and transparency.13
commitments in meaningful ways. Three-quarters of
respondents said their institutions will increase While banks have made good progress on
investment in climate-related initiatives. Recently, for sustainable finance, there is much more that
example, Goldman Sachs announced it will deploy can be done.
US$750 billion across investing, financing, and
advisory activities by 2030 on sustainable finance Across industries, sustainability goals often lack
themes such as climate transition and inclusive transparency and connection to the day-to-day
growth.8 Similarly, UBS increased its core sustainable business activities, such as lending or underwriting.
investments by more than 56%, to US$488 billion. 9
Greenwashing—relabeling and branding existing
business activities as supporting a green agenda—
Regulators around the world are quite focused on is also an unpleasant reality.
the systemic impact of climate risk on financial
markets and stability. Many have proposed new Varying and confusing terminology, and the lack of
frameworks with a broader set of expectations. In commonly accepted global standards are other
the United States, the Commodities Futures barriers. Sustainability organizations are making
10
Strengthening resilience, accelerating transformation
efforts to address these issues. For instance, the multiple ways, but most crucially, through financial
PCAF has developed a global carbon accounting commitments. For instance, JP Morgan committed
standard, while the Global Sustainability Standards US$30 billion to fight the racial wealth gap.16
Board is setting standards for reporting.14 But there
still isn’t enough coordination and consensus Sustainable finance is not just about doing the
across regions and within the financial right thing—it can also be good business. Take
services industry. financial inclusion, for example. Some banks,
especially in developing economies, have been
Other persistent challenges are insufficient data successful in addressing this challenge. Likewise,
and the use of imperfect metrics to assess many fintechs and nonbanks have designed
sustainability activities, performance, and innovative solutions. Banks should heed this call
outcomes. Of course, this is a broader cross- and get more creative about building economically
industry problem that banks can work with clients attractive and durable business models. These
and data vendors to address. efforts should also be extended to other societal
challenges, such as financial education, health care
Within banks, while the board and CEO set the access, and affordable housing.
tone and inspire action, the chief sustainability
officer should be empowered to more forcefully
influence culture and behaviors across the Banks should take a leadership
role, and continue to engage
institution. The chief risk officer (CRO) is also
central to this transformation. CROs must
ensure that climate risks are integrated into with regulators, industry
their risk management frameworks and
practices and more directly embedded into organizations, clients, and
stress-testing exercises.
counterparties to build
Translating these goals into business-specific a robust, pervasive, and
actions and outcomes will be a balancing act,
and may require some short-term financial
persistent sustainable finance
sacrifices. agenda going forward.
Last, banks should also bolster their transition
risk services and solutions to clients as they Banks cannot solve many of these intractable
decarbonize. The field is ripe for capital market
15
problems on their own. It will likely take
innovations to create and trade carbon credits, and, collaboration across industries and government
more broadly, share climate risk across agencies to move the needle in a meaningful way.
market participants. Banks should take a leadership role, and continue
to engage with regulators, industry organizations,
Some of these challenges also translate to the social clients, and counterparties to build a robust,
sphere. COVID-19 has exacerbated income pervasive, and persistent sustainable finance
inequality and gender and racial disparities. Some agenda going forward. They may discover that such
banks have already demonstrated leadership in actions may also yield commercial benefits.
11
2021 banking and capital markets outlook
T
HE PROMISE OF digital banking was never customer satisfaction with mobile offerings has
fully realized, largely due to customer reluctance declined.22 In Australia, too, satisfaction with
and/or a lack of attractive digital solutions. But problem resolution declined as interactions moved
the pandemic turbocharged digital adoption across from in-person to digital.23
products and demographic segments. For instance,
44% of retail banking customers said they are using And while only a few customers may be planning to
their primary bank’s mobile app more often.17 switch institutions now, customer retention risk
Likewise, at Nubank, a Brazilian digital bank, the could resurface once the pandemic is over,
number of accounts rose by 50%, going up to a total particularly with younger customers.24
of 30 million.18
12
Strengthening resilience, accelerating transformation
FIGURE 5
Some banks will add more digital capabilities to branches over the next year
Digital changes being considered
48%
46%
39%
33%
Source: The Deloitte Center for Financial Services Global Outlook Survey 2020.
Deloitte Insights | deloitte.com/insights
To achieve this goal, banks can integrate their The pandemic has already resulted in significant
disparate data architecture across lines of increases in forbearance and collections. Because
business (LoBs) and functions and combine it of banks’ limited capacity to serve these customers,
with AI-driven analysis to create a 360-degree chatbots and conversational AI tools are being
view of customers. BBVA, for example, built new implemented. Improving the digital experience by
data analytical capabilities through a global data adding these tools could help banks engage with
platform and a dedicated “AI factory.”25 these customers and answer their questions.
13
2021 banking and capital markets outlook
In these and other customer interactions, banks differentiators and offer new pathways to
should be sure to maintain the human touch. profitability. DBS Bank’s Marketplace allows
Digital interfaces are essential, and desired, but customers to conduct property and vehicle
customers tend to need person-to-person transactions, book travel, and compare and switch
experiences to boost loyalty. For instance, utility plans. It could be a precursor to what one
educating consumers on better debt management might see more broadly in the future.27
and being empathetic in debt collection efforts
could help strengthen banks’ customer To fully realize the digital promise in the front
relationships and engender trust. office, banks should elevate customer engagement
by deploying an optimal mix of digital and
In both retail and institutional contexts, novel human interactions, intelligent use of data,
banking platforms to engage customers across the novel partnerships, and compelling service
full range of their financial (and possibly delivery models.
nonfinancial) needs could be compelling
14
Strengthening resilience, accelerating transformation
Talent
Boosting well-being and productivity
through resilient leadership
B
ANKING LEADERS AROUND the world have to reduce their workforce and reconfigure the
faced an array of challenges on the talent compensation structure.
front, from shifting to a remote, distributed
workforce to finding ways to keep employees Even before the pandemic, the future of work was
engaged and productivity high. top of mind for many banking executives. It is
hard to say what the exact implications of COVID-
Additionally, many banks took or are planning to 19 will be on how work might evolve. But these
take several workforce-related actions (figure 6), changes, along with other forces, such as digital
such as offering flexible schedules to employees. acceleration, will likely transform talent models in
But they have also had to deal with the economic the banking industry.
realities brought on by the pandemic, forcing some
15
2021 banking and capital markets outlook
FIGURE 6
Flexible schedules
55% 33% 12% 1%
Voluntary time off
44% 34% 22% 1%
Furloughs
57% 25% 19%
Compensation reduction
48% 40% 13%
Freeze on promotions
51% 34% 16%
Layoffs
20% 48% 34%
80% 17% 2%
Source: The Deloitte Center for Financial Services Global Outlook Survey 2020.
Deloitte Insights | deloitte.com/insights
16
Strengthening resilience, accelerating transformation
prioritize physical and psychological health efforts Technology, meanwhile, is already being used to
that can also help maintain employee productivity. improve talent outcomes and promote resilience.
In remote environments, however, managing can It should also play a fundamental role in
be a tricky dance: Team leaders will need to try to improving productivity in a virtual environment,
strike the right balance between maintaining their boosting learning, creating flexible teams, sharing
teams’ motivation and productivity levels without knowledge, making information flows efficient,
micromanaging. and promoting new forms of collaboration across
the organization. Leaders must recognize that
Team leaders should also focus on ensuring that technology deployment in remote settings can be
employees feel a sense of belonging at work. They a two-sided coin: videoconferencing fatigue on
should be afforded opportunities to learn how their one side, the need for social contact on the other.
work fits into the bigger picture, to gain a deeper
appreciation for how they are making an impact While uncertainty around large-scale vaccine
within and outside the organization. 29
availability persists, over the next few months,
talent functions will be busy crafting safe return-
Banks may also need to transform their talent to-workplace strategies. The most successful
strategies to enable employees to learn better, faster, banks will likely be those that can quickly adapt
and more frequently. Programs that focus on and make changes to their workforce and
“learning how to learn,” curated learning, and learning reconfigure their workplaces.
via experiences should lead to better retention and
more positive organizational results overall.30 Success For instance, banks’ IT departments have used
in the post-COVID-19 world will likely demand a new agile practices successfully for software
set of skills, but simply reskilling the workforce is not development and testing. But agile methods
expected to be enough. should now be integrated into business
operations. This integration is at the heart of
Establishing new talent models should facilitate the future of work. While cultural and other
flexible, self-organizing teams that come together for a factors may make it more challenging,
common purpose. Workplace redesign should also be implementing these changes can result in material
a key focus as institutions strike the right balance outcomes. New tools and technologies can
between the workplace and virtual/remote certainly help. It has to be seen as a continuous
arrangements, based on the specific needs of various process improvement, leading to
roles/jobs. Boosting productivity, creativity, and competitive differentiation.
collaboration should be the ultimate goals.
Finally, banks’ future talent strategies should be
The nature of teaming will likely also need to change. agile and adaptable. Developing new talent
COVID-19 has revealed that many banks still have models is expected to require innovative and
outdated organizational structures and hierarchies. inclusive leadership focused on resilience. To be
New team structures should be tied directly to how most effective, these resilient leaders31 should be
work gets done. future-focused and empathetic.
17
2021 banking and capital markets outlook
Operations
Building longterm resilience and using
technology for strategic cost transformation
C
OVID-19 INFLICTED ENORMOUS stress on information systems to respond quickly to future
banks’ operations, and there were hiccups at events. For instance, they may consider
some institutions. But many banks handled nearshoring some offshore positions to embrace a
the challenges well. Overall, the relatively smooth true multilocation model. This may build in some
transition to a new virtual operating model is a redundancy, but it would help reduce operational
testament to years of preparation and regulators’ risks. In our survey, a majority of respondents
attention on operational resilience.32 reported implementing or planning to implement
some of these resilience measures (figure 7).
The pandemic also highlighted the need for greater
rigor in some banks’ business continuity planning, Undoubtedly, agility goes hand in hand with
crisis management, and recovery.33 Moreover, it resilience. Banks should eschew perfection in favor
exposed vulnerabilities in their global footprint and of agile execution. Leaders should empower their
dependence on external provider networks; in front-line workforces with more decision-making
countries observing national lockdowns, many authority by creating flatter team structures and
institutions experienced a disruption in offshore revisiting responsibilities and accountability.35
delivery centers.
Many banks could also pursue a structural cost
transformation initiative to bolster operational
Strengthening resilience and efficiency (figure 7). They can use branch and
accelerating transformation office space rationalization as one of the levers to
lower fixed costs. However, traditional branch
in operations
closures could be partially offset by drive-throughs
Going forward, strengthening operational and next-gen branches that enhance customer
resilience will likely be a main challenge many experience. For instance, US Bancorp plans to
banks face.34 While there’s no silver bullet, banks maintain its café-style branches and reemphasize
could reassess their global footprint and its role in facilitating conversations with
dependence on third parties, conduct more customers as transactions increasingly shift to
frequent simulation exercises, and improve digital channels.36
18
Strengthening resilience, accelerating transformation
FIGURE 7
Source: The Deloitte Center for Financial Services Global Outlook Survey 2020.
Deloitte Insights | deloitte.com/insights
Some banks could also be conducting layoffs to Concurrently, banks should continue to explore
rationalize costs. One-third of respondents how technologies, such as cloud, machine learning,
indicated their firms are planning to do so. So far, robotic process automation, and distributed ledger
most bank leaders seem less receptive to employing technology, can simultaneously contribute to
alternative workforce models—less than one-third significant cost savings, while also helping increase
of respondents mentioned their firms have speed, improve accuracy, and provide scalability.
transitioned to need-based, or “gig,” workers. But Streamlining front-to-back data flows and
exploring solutions to maintain productivity levels deploying data analytics will remain prerequisites
in a remote work environment will be crucial. to achieve the desired efficiencies.
19
2021 banking and capital markets outlook
Needing to make these investments in a low self-service options, streamlining data flows and
interest rate environment, some banks, especially operations with automation, and restructuring for
smaller ones, may pursue mergers and acquisitions optimal service delivery. LoB heads should also be
(M&A) opportunities for scale. Among respondents asked to assess whether they are competitive in all
from smaller banks (annual revenues between the spaces they play, and if not, consider exiting
US$1 billion and US$5 billion), 57% said their those businesses and activities.
institutions could pursue M&A
opportunities over the next 6–12
months. Meanwhile, one-third of Chief operating officers may
respondents indicated their banks may
also look at rationalizing assets or
also need to challenge cost
divesting noncore operations. management orthodoxies, such as
In addition to these enterprisewide
outsourcing noncore activities or
initiatives, implementing LoB-level cost using technology to do traditional
transformation efforts may be required.
LoB leaders should be empowered to
manual tasks.
determine where their energy and
resources should be focused. They should be able This would likely require a top-down cultural
to change the way work gets done by introducing change.
20
Strengthening resilience, accelerating transformation
Technology
Capitalizing on the multiplicative
value of different technologies
B
ANKS WERE MAKING rapid strides in their could provide personalized customer experience
digital transformation journey, but the and improve call-center efficiency.40
pandemic accelerated the pace. To meet the
demands of the new realities, projects that once Looking ahead, bank technology leaders should
took months or even years were accomplished in place bold bets on initiatives that could transform
just weeks, such as banks response to the US businesses, such as core systems modernization.
Paycheck Protection Program (PPP). Banks that There may not be one core systems solution that
invested in digitizing their businesses over the last fits all, so to determine which option is best, banks
decade demonstrated higher agility and resilience should evaluate the sustainability of current
in adapting to COVID-19-led changes than others.37 platforms, their appetite for risk, and the need to
innovate their offerings.
However, the first half of 2020 exposed vulnerabilities
in banks’ technology arsenals. Nearly four in five Meanwhile, new approaches may be needed, such
respondents agreed38 that COVID-19 has uncovered as modular execution and experimentation on the
shortcomings in their institution’s digital capabilities. edge, to achieve the full benefits of this
Technical debt in the form of legacy infrastructure and modernization. Creating stronger incentives to
data fragmentation across the enterprise continues to decommission legacy systems could help in this
impede banks’ digital transformation initiatives.39 But effort. Also, technology leaders should factor in
in many institutions, digital inertia has faded: There is how the current technology stack can interface
now more appetite for technology-driven with not just next-gen but next-next-gen
transformation, especially in core systems. innovations, such as advanced machine learning
techniques, blockchain applications, or
quantum computing.
Strengthening resilience and
accelerating transformation Until now, cloud migration efforts were
predominantly focused on cost reduction,
in technology
modernizing the technology stack, and more
In the near term, bank technology departments recently, virtualizing the workforce. But the real
should bolster their technology infrastructures to promise of cloud may lie in enabling banks to
offset stresses in the market today. For instance, as reimagine business models, foster agility, achieve
banks face capacity constraints in workouts and scale, drive innovation, and transform customer
loan restructuring, conversational AI systems experience. Moreover, transitioning to cloud-
native, API-driven core systems could help bank
21
2021 banking and capital markets outlook
leaders radically rethink product design, as neobanks Additionally, the technology function should play
and bigtechs have done. Indeed, our respondents a critical role in banks’ structural cost
indicate spending on cloud will increase over the next transformation efforts. First, this can help ensure
year. This is especially true for respondents in North technologies are used deliberately to change cost
America, at 56%, and Asia-Pacific, at 61%. structures. Second, to cut costs, banks should
reexamine the build-buy-outsource/offshore
While AI adoption is still not as widespread,41 and the model for technology projects. One-half of
full potential has yet to be realized, banks must respondents said their institutions’ inclination to
recognize that AI does not exist in isolation. Almost outsource has somewhat or significantly increased
42% of respondents anticipate increased investment during the pandemic, while about 40% indicated a
in AI technologies at their firms over the next year. AI decline in their institution’s intent to build or buy
should be embedded/combined with other (figure 8). Increasingly, banks can deploy
technologies, such as cloud, IoT, 5G, and distributed managed services to cut costs for critical but less-
ledger, to create multiplicative value. No matter the differentiating activities.
application, ethical use of AI should remain a given.
Lastly, chief technology officers, along with other
Progress on digital transformation could fall short if C-suite executives, should ask how far, how deep,
banks do not get a handle on data quality, architecture, and how wide digital transformation should go to
and governance. New solutions, such as knowledge help banks achieve their long-term goals.
graphs, are available to extract the full value of data by Deciding how much change is needed, and what
addressing data fragmentation. the role of technology is in this transformation,
are important strategic questions to address.
FIGURE 8
Outsource
50%
22%
Partner
38%
30%
Build
33%
41%
Buy
29%
39%
Source: The Deloitte Center for Financial Services Global Outlook Survey 2020.
Deloitte Insights | deloitte.com/insights
22
Strengthening resilience, accelerating transformation
Finance
Driving strategic value through data
W
HEN THE PANDEMIC brought the world potential impacts and actionable insights.44
to a halt, bank chief financial officers Pushing financial planning and analysis processes
(CFOs) and treasurers faced a barrage of into business units should improve granularity and
priorities. The robust capital levels banks had built accuracy.45 However, using current legacy
up over the past decade reduced near-term stress, infrastructure in these endeavors may be
and deposit inflows and government support of challenging for many banks. There may not be one
capital markets minimized liquidity concerns. In core systems solution that fits all, so to determine
the initial phase of the pandemic, banks tightened which option is best, banks should evaluate the
lending standards. Most banks also responded well sustainability of current platforms, their appetite
to regulatory reporting requirements, providing for risk, and the need to innovate their offerings.
timely and high-quality data.
Cloud applications can help in this regard, enabling
More recently, CFOs have been leading cost continuous planning with rolling and driver-based
transformation efforts, which should remain a key forecasting. Together with AI, these solutions could
priority for banks in the years ahead. also improve resilience by boosting cashflow
forecast accuracy.
23
2021 banking and capital markets outlook
Finance leaders already acknowledge the need Moreover, as the finance function becomes more
for some of these changes. More than 60% of analytics-driven, new skills will likely be required
respondents in the finance function expect to in data science and coding. To attract this talent,
increase cloud investments, and 51% said their banks should offer agile work environments and
firms will increase spending on data analytics new technologies that would shift away from
(figure 9). But only 40% and 43% expect having employees handle repetitive and mundane
increases in investment spend on automation manual tasks, allowing them to focus on analytical,
and AI, respectively. creative, and strategic activities.
CFOs should be flag bearers of an innovative, data- Last, the finance organization should help manage
driven decisioning framework and more targeted climate risk. Ultimately, the impacts of climate
capital allocation, which can yield higher-quality
48
risk are not just social or reputational, but
outcomes, such as better return on investments. financial as well.
FIGURE 9
Banks plan to increase spending on various technologies over the next year
Finance respondents whose organizations plan to increase spending
71%
60% 60%
51%
43%
40%
37%
29%
Cyber- Cloud Data Data Artificial Robotic process Blockchain and Digital
security computing and privacy analytics intelligence automation distributed channels
storage (AI) (RPA) ledger
technologies
Source: The Deloitte Center for Financial Services Global Outlook Survey 2020.
Deloitte Insights | deloitte.com/insights
24
Strengthening resilience, accelerating transformation
Risk
Creating a new risk control architecture
T
HE COVID-19 PANDEMIC dramatically Strengthening resilience and
altered the risk landscape for the banking accelerating transformation in
industry on a number of fronts. Initial spikes
the risk management function
in asset price volatility significantly increased
market risk, testing banks’ financial stability and To start, maintaining focus on operational risks is
risk resilience. The virtual work arrangements critical. Conduct risk, for instance, remains a potent
many banks adopted introduced new operational threat. While reported incidents of conduct risk are
risks. The new parameters brought existing risks, not yet widespread, 72% of respondents said their
such as business continuity planning and conduct institution was looking into programs that reduce
risk, into greater focus. conduct risk. So, actively monitoring and exerting a
strong risk control culture, possibly through new
Furthermore, it soon became clear that banks surveillance and control tools, should be a priority.
could be facing sizable credit losses across their
loan portfolios. But credit loss models were not Banks should also buttress risk sensing. But
calibrated to accommodate extreme, out-of-bounds achieving sound data integrity across the risk
macroeconomic conditions, raising doubts about control framework still seems easier said than done.
the model outputs. Credit losses will likely increase There are too many manual processes involved
as the economic recovery stalls. across the risk management function.
Meanwhile, regulator concerns about financial In addition to data quality and governance, another
crimes in the areas of cyber fraud and anti-money challenge is the prevalence of deficiencies in risk
laundering increased. Regulators were also keen to control design and architecture. Controls with poor
receive more detailed and frequent reporting from supervision, self-assurance and validation, with
banks on the various risks they were facing. unclear responsibilities between the first and second
lines still remain. Here, leaders should take steps to
However, with crisis comes opportunity, even enable the first line to take greater ownership.
during these challenging and uncertain times.
Considering this ever-evolving risk landscape, In this regard, technology’s true power—its ability to
banking risk leaders should reboot their risk reshape risk frameworks in more meaningful ways—
frameworks to ensure long-term resilience. has yet to fully be realized.
25
2021 banking and capital markets outlook
should also incorporate climate risk, new risk standards and models
that include climate risk.
which includes transitioning to a
carbon-neutral society. Finally, in the post-COVID-19
world, risk fundamentals are
unlikely to change, but risk leaders
Credit risk models may also need to be updated to should rethink old governance
factor in the effects of climate change on individual models and the way they are applied. They should
credits. These new assumptions and risk prioritize a risk management approach that is
assessments should be more directly embedded holistic, all-encompassing, and embedded across
into stress-testing exercises. The chief risk officer the business to ensure a resilient foundation in the
may also want to partner with the institution’s long term.
26
2021 banking and capital markets outlook
I
N THIS REPORT, we highlighted what banks segments? In the table below, we highlight some
should focus on in 2021 and beyond across key strategic and operational priorities for
various business functions. But how do these businesses to consider.
considerations translate to the individual business
FIGURE 11
Key actions to consider in the business segments
Business segments Strategic and operational priorities to consider in 2021
• To counter subdued NIM growth, boost fee income from current and new
services, and consider M&A to build scale and new revenue opportunities
• Expedite structural cost transformation initiatives within the businesses to
enhance efficiencies across the value chain
Retail banking
• Revisit the optimal channel mix to elevate customer engagement
• Rapidly deploy AI solutions to identify at-risk customers and help them
recover, while remaining sensitive to customer distress
• Develop novel banking platforms to engage customers across the full
range of their financial needs
30
Strengthening resilience, accelerating transformation
SURVEY METHODOLOGY
The Deloitte US Center for Financial Services conducted a global survey among 200 senior banking
and capital markets executives in finance, operations, talent, and technology.
Survey respondents were asked to share their opinions on how their organizations have adapted to
the varied impacts of the pandemic on their workforce, operations, technology, and culture. We also
asked about their investment priorities and anticipated structural changes in the year ahead, as they
pivot from recovery to the future.
Respondents were equally distributed among three regions—North America (the United States and
Canada), Europe (the United Kingdom, France, Germany, and Switzerland), and Asia-Pacific (Australia,
China, Hong Kong SAR, and Japan).
The survey included banking and capital markets companies with revenues of at least US$1 billion
in 2019: Nineteen percent had between US$1 billion and US$5 billion in revenues; 22% had between
US$5 billion and US$10 billion; 33% had between US$10 billion and US$25 billion; and 27% had more
than US$25 billion.
31
2021 banking and capital markets outlook
Endnotes
1. International Monetary Fund (IMF), World Economic Outlook, October 2020: A long and difficult ascent,
October 2020.
2. IMF, World Economic Outlook, October 2019: Global manufacturing downturn, rising trade barriers, October 2019.
3. The methodology used to make these forecasts is outlined here: Mark Shilling, Gary Shaw, and Jim Berry, The
path ahead: Navigating financial services sector performance post-COVID-19, Deloitte Insights, September 10, 2020.
4. Ibid.
6. World Bank, “COVID-19 to add as many as 150 million extreme poor by 2021,” press release, October 7, 2020.
7. Jonathan Walter, Measuring stakeholder capitalism: Towards common metrics and consistent reporting of
sustainable value creation, World Economic Forum, September 2020.
8. Goldman Sachs, “Sustainable finance at Goldman Sachs,” accessed October 26, 2020.
9. UBS Media, “UBS achieves ambitious sustainable investment goal ahead of schedule; tightens fossil fuel
standards,” media release, March 5, 2020.
10. Commodity Futures Trading Commission, Managing climate risk in the US financial system, September 2020.
11. European Central Bank, “ECB launches public consultation on its guide on climate-related and environmental
risks,” May 20, 2020.
12. Congress.gov, “S.2903 - Climate Change Financial Risk Act of 2019,” accessed October 26, 2020.
13. Institute of International Finance, “IIF/UNEP-FI TCFD report playbook,” September 2020; World Economic
Forum, The net-zero challenge: Global climate action at a crossroads (part 1), December 2019; UNEP Finance
Initiative, “TCFD – Task force on climate-related financial disclosures,” accessed October 26, 2020.
14. Global Reporting Initiative, “Global sustainability standards board,” accessed October 26, 2020.
15. Refinitiv Podcast, “The role of banks in Sustainable Finance & Crisis Mitigation & addressing the fossil fuel
challenge,” accessed October 26, 2020.
16. JP Morgan, “JPMorgan Chase commits $30 billion to advance racial equity,” October 8, 2020.
17. Jim Miller, “Financial services COVID-19 pulse survey,” slide 35, J.D. Power, September 25, 2020.
18. The Economist, “How the digital surge will reshape finance,” October 2020.
21. J.D. Power, “Retail banks face major customer satisfaction challenge as world shifts to digital-only engagement,
J.D. Power finds,” April 30, 2020.
22. J.D. Power, “Canadian Banks face untimely digital banking headwinds since pandemic began, J.D. Power finds,”
May 7, 2020.
23. J.D. Power, “Critical moment for banks as financial situations worsen and engagement shifts to digital, J.D.
Power finds,” September 1, 2020.
32
Strengthening resilience, accelerating transformation
24. Foresight Research, “Expect a spike in consumers switching banking providers due to the pandemic,” October
21, 2020.
25. Chris Semple, “How BBVA built a snowball to increase digital sales in Spain,” BBVA, November 14, 2019.
26. Alaina Sparks et al., Beyond COVID-19: New opportunities for fintech companies, Deloitte, April 15, 2020.
28. M. Ahmed, “It’s time to future-proof your workforce for the digital era: Citi’s Joel Fastenberg,” Indeed People
Matters, September 9, 2020.
29. Erica Volini et al., Returning to work in the future of work: Embracing purpose, potential, perspective, and possibility
during COVID-19, Deloitte Insights, May 15, 2020.
30. Erica Volini et al., Beyond reskilling: Investing in resilience for uncertain futures, Deloitte Insights, May 15, 2020.
31. Khalid Kark et al., The kinetic leader: Boldly reinventing the enterprise, Deloitte Insights, May 30, 2020.
32. Bank of England, “Operational resilience: Impact tolerances for important business services,” December 5,
2019; OCC, “OCC highlights key risks for federal banking system,” June 29, 2020.
33. Rhoda H. Woo et al., Confronting the crisis: How financial services firms are responding to and learning from
COVID-19, Deloitte Insights, April 29, 2020.
34. Damian Walch et.al., “Operational resilience: Ready for the next crisis?,” Deloitte Dbriefs, July 15, 2020.
35. Andrea Willemse et al., Lessons learned during COVID-19: A banking study, Deloitte, August 14, 2020.
36. Kavita Kumar, “U.S. Bank rolls out new branch formats for digital age,” StarTribune, September 24, 2020.
37. Tim Adams et al. Realizing the digital promise: Key enablers for digital transformation in financial services, Deloitte
and Institute of International Finance, June 4, 2020.
38. Includes respondents who significantly agree, agree, and somewhat agree.
39. Realizing the digital promise: Key enablers for digital transformation in financial services”, Deloitte and Institute
of International Finance, June 4, 2020.
40. Bill Streeter, “Chatbots to the rescue: How conversational AI will save call centers,” The Financial Brand, June 8,
2020.
41. Beena Ammanath, Susanne Hupfer, and David Jarvis, Thriving in the era of pervasive AI: Deloitte’s State of AI in the
Enterprise, 3rd Edition, Deloitte Insights, July 14, 2020.
42. Nathan Stovall, “Banks left with pockets full of cash and few places to go,” S&P Global Market Intelligence,
September 30, 2020.
43. Eric Merrill, Adrian Tay, and Steven Ehrenhalt, Crunch time #6: Forecasting in a digital world, Deloitte, 2018.
44. Ajit Kambil et al., “Reinventing FP&A for the pandemic and beyond,” Deloitte, 2020.
45. Anton Sher, Steven Ehrenhalt, and Jonathan Englert, Crunch time V: Finance 2025, Deloitte, 2018.
46. Deloitte, “CFO signals: 2020 Q3: Some economic recovery, but growing skepticism about the pace going
forward,” 2020.
47. Jim Kilpatrick, Jason Dess, and Lee Barter, COVID-19: Managing cash flow during a period of crisis, Deloitte, March
6, 2020.
33
2021 banking and capital markets outlook
48. John Celi et al., Finance and the future of IT: Funding innovation at the speed of agile, Deloitte Insights, January 15,
2020.
49. Sanne Wass, “Banks raise concern over insider threats as pandemic takes toll on mental health,” S&P Global
Market Intelligence, October 26, 2020.
50. Julie Bernard, Deborah Golden, and Mark Nicholson, Reshaping the cybersecurity landscape: How digitization and
the COVID-19 pandemic are accelerating cybersecurity needs at many large financial institutions, Deloitte Insights,
July 24, 2020.
51. These estimates are based on Deloitte’s proprietary analysis. For more details on the methodology see: Shilling,
Shaw, and Berry, The path ahead.
52. Jennifer Laidlaw and Rehan Ahmad, “CaixaBank-Bankia merger may have domino effect on Spanish market,”
S&P Global Market Intelligence, September 2020.
53. S&P Global Market Intelligence, “Tech in banking 2020: The race to digital adoption,” July 2020.
54. Jesús Aguado and Emma Pinedo, “Cross-border mergers in Europe would help diversify banks - ECB’s de Cos,”
Nasdaq, October 26, 2020.
55. The United States Department of Justice, “Antitrust Division seeks public comments on updating bank merger
review analysis,” September 1, 2020.
56. Conference of State Bank Supervisors, “CSBS comment letter: Antitrust Division banking guidelines review:
Public comments topics & issues guide,” October 16, 2020.
Acknowledgments
Co-authors Val Srinivas, Jan-Thomas Schoeps, Richa Wadhwani, and Abhinav Chauhan wish to
thank the following Deloitte client services professionals for their insights and contributions, Joe Alt,
Daniel Bachman, Jamie Baker, Eddie Barrett, Maximiliano Bercum, Julie Bernard, Vikram Bhat,
Alex Brady, Robert Contri, Desiree D’Souza, Margaret Doyle, Peter Firth, Tom Freas, Rob Galaski,
Sylvia Gentzsch, Corey Goldblum, Prince Nasr Harfouche, Gys Hyman, Courtney Kidd-Chubb,
Jason Marmo, Jojy Mathew, Garrett O’Brien, Timothy O’Connor, Margaret Painter, Parth Patwari,
Larry Rosenberg, Shailender Sidhu, Chris Thomas, Troy Vollertsen, Deron Weston, and David
Zierler.
34
Strengthening resilience, accelerating transformation
Mark Shilling is a Deloitte vice chairman and leads the Banking & Capital Markets practice in the United
States. He is responsible for all industry services, solutions, resources, and ecosystem alliances across
Deloitte’s business groups. Previously, he was a member of the US and Global Finance Transformation
leadership team focused on delivering and advising on large-scale change agenda for the CFO, CRO,
and CDO within financial services.
Anna Celner is the Global Banking & Capital Markets practice leader for Deloitte, with the responsibility
for setting and executing the global banking strategy. In this role, she leads strategic client portfolio,
go-to-market strategy, and the coordination of Deloitte’s global network to help banking clients
address their strategic priorities and respond to regulatory, technology, and growth challenges.
35
2021 banking and capital markets outlook
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Strengthening resilience, accelerating transformation
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