The outlook for banking in 2011 remains challenging. The housing market remains weak, unemployment high and the recovery fragile. For retail and commercial banks this means continued pressure on portfolio quality and margins. For investment banks 2011 may be a year of more opportunity. Stronger equity markets, more IPOs and bond issues, and increased M&A activity all suggest a stronger year ahead. Asian markets appear to offer greater opportunities for both retail and investment banks.
But risks remain elevated and new ones are emerging. European markets remain under pressure. Inflation is rising in China threatening an emerging market recovery. Banks are struggling to safeguard their IP from rogue employees. Wiki Leaks create new standards of transparency in financial journalism.
A new economy is emerging. Social networking is attracting new investors. There will be a more fragmented device market composed of different smart phones, slates as well as PCs. We are seeing game changing shifts in many areas – mobility, user interfaces, chip technology and cloud computing. High performance computing is further reducing latency in capital markets. Digital advertising is changing how we reach out to customers. Analytics are enabling us to sell to a market of one.
We are rapidly moving towards a world where all touch is high touch, all applications are connected and all services are continuous.
Regulation remains a growth industry. The rules for Dodd-Frank are still being written. Basel III and the Collins Amendment raise the bar on capital ratios. There will finally be a Head of the Consumer Financial Protection Bureau. A new Office of Financial Research will have broad, far reaching powers. We have a more active SEC.
As a result, we are witnessing a sea change in business and operating models, transformed by a revolution in technology.
For the near term at least, the banking industry will be less invested in scale and more in agility and transparency. It will deepen customer relationships, improve data management, and create leaner operating models. Banks will depend less on internal and more on external resources to navigate shifting markets. The pressure to do more with less will grow, and the options to achieve this will significantly increase.