The future of retail banking after covid-19

McKinsey Global Institute (MGI) analyses the near future of the European retail banking sector after covid-19. The need to find new revenue´s sources, the progressive digitalization of the sector and the changes in consumer´s behaviors will be key to reshape its business model and future strategy.

According to MGI, the covid-19 crisis will accelerate and consolidate the following trends in the European retail banking sector:

• Revenue pressure: Projected revenue drops (after credit provisions) of 16-44% in line with the previous financial crisis (2008-2012). New sources of revenue will be needed, through new services and selective growth through the use of big data and digital marketing. There will also be opportunities for inorganic growth (M&A), either to seek scale or to upgrade technology. 
• Incremental usage of digital banking as a result of changes in consumer´s behaviors: In Spain, Italy and the US, the use of digital channels will increase significantly (+15-20%) above the average, a trend which will continue to accelerate over the next three years and which in some markets may involve up to 25% fewer branches. European customers, even those over 65, show a very high preference (60-85%) for carrying out their daily transactions through digital means and the digital preferences in banking services of senior customers (+50) are beginning to be aligned with those of younger ones.
• From the credit risk approach, the models will be able to be reinvented using real-time information, and will have to adapt to the new reality with sectorial visions: clients who can grow, clients with government aid who have temporarily had liquidity or "business model" problems, and clients who are structurally not viable. 
• Opportunities to simplify organizations. It will be important to keep in place the efficient initiatives and the rapid pace of decision-making established during the crisis.
• Trust and responsible banking: MGI considers that banks will have the opportunity to renew their trusting relationships with society, promoting a new social contract after the covid-19 and leading the best responsible banking practices.