More than a year after much of the world went into some form of lockdown, many customers previously resistant to digital banking have grown accustomed to it, and most do not plan to return to their old banking habits. A survey of people in the US aged 18 to 65, conducted by Chase Bank, found that four in five now prefer to manage their finances digitally rather than in person, and three-quarters are likely to continue using digital payment options even after the covid-19 threat subsides. These findings are mirrored in many other countries around the world.

“Overnight people became digital, when it was supposed to take ten years,” says Michal Kissos Hertzog, chief executive of Pepper, an Israeli digital bank, of the impact of the covid-19 pandemic. “It doesn’t matter if you are Gen X or Gen Z—everyone became digital.” 

Banks have been forced to adapt as a result. “All banks have had to up their game, so competition has become stronger,” says Ms Kissos Hertzog. The shift to online brought by the pandemic has proven a boon for digital-only banks. As of January 2021, 14m Brits (27% of UK adults) had a digital-only bank account—16% growth from January 2020 and a threefold increase compared to January 2019.

The shift has brought forward expectations of the demise of the branch, traditionally the centre of the retail banking experience. According to our annual global banking survey, supported by Temenos, 65% of bankers now believe that the traditional branch-based banking model will be “dead” within five years, while 71% expect cash to represent less than 5% of all retail transactions globally by 2025.

Senior executives report that technology is driving customer experience. Survey respondents cited changing customer behaviours and demands around digital banking, the new technologies needed to understand and serve customers better, and regulation on digital technology (including data protection, which dictates how banks can interact with customers and their data) as the top three trends that will have the biggest impact on banks in their countries by 2025.

Consequently, survey respondents’ top strategic priorities by 2025 are all customer-focused: improving customer experience and engagement, including personalisation and intimacy; mastering digital marketing; and migrating client usage from physical to digital channels.

At Pepper, the focus has been personalisation. When individual customers open the bank’s app, they see a homepage personalised to their specific actions, says Ms Kissos Hertzog. “Different customers will see different products, will receive different marketing.” The goal is a “segment of one”, tailoring the experience precisely to the individual consumer based on their activity and preferences. “The more personalised the service is, the more engaged customers are.”

Technology investment

According to survey respondents, banks’ top investments in customer-related technology include developing artificial intelligence (AI) platforms, such as digital advisors and voiceassisted engagement channels, and advanced and predictive data analytics for customer experience. 

Adoption of this technology starts with data, says Ms Hertzog. “Banks are sitting on a humongous amount of data, but they are not doing a good job [of using it],” she says. “I want to use data to give customers a better understanding of their money, to help them decide how to save, to budget, whether they should invest in the stock market."

But she cautions against focusing investment on specific technologies just because they are the latest trend. “I’ve never heard my users saying, ‘I chose you because you have the best artificial intelligence of all banks’. What they care about is that they will have good service, that they’ll see the benefits from their bank, and that we meet their needs,” she says. 

“When we speak about technology, it’s important to understand that the technology is not the target, it’s a means to an end. Of course, we have to have great AI, and we are implementing machine learning and blockchain—we’re doing all of that. But we are doing all of that in order to give the best customer experience.”

Crunch time for banks

Bankruptcy comes two ways, Ernest Hemingway wrote: “gradually, then suddenly”. Such has been high-street banking’s fate at the turn of the decade. Justifying the axing of a fifth of Santander’s branches, deputy chief executive Tony Prestedge told the BBC that branch transactions at the eurozone’s largest retail bank had fallen by a third in the two years prior to the covid-19 pandemic—before they plunged by half during the lockdowns of 2020. “The pandemic has ‘concertinaed’ five to ten years of change into a year,” said Mr Prestedge.

The rapid collapse of branch-based banking is an acceleration of a trend that The Economist Intelligence Unit’s global banking survey, now in its eighth year, has long seen coming. In the latest survey, conducted in early 2021, just under two-thirds (65%) of banking executives agreed that the branch-based model will be “dead” within five years, up from 59% last year and 35% in 2018 (see Figure 1). In 2018 69% of Europe-based respondents disagreed with the statement—today the same proportion agree.

This year’s survey finds that branch closures and continued pressure from non-traditional competitors have triggered a wholesale rethinking of banking priorities and business models among banking executives.

Just under two thirds (65%) of bankers now believe that the branch-based model will be “dead” within five years, up from 35% four years ago. The rise has been sharpest in Europe and North America. 

Banks in 2021 face competition from all sides. New, nimbler competitors including fintech startups, payment players, superapp platforms and tech giants continue to gain market share from incumbent banks as more non-traditional players gain the ability to offer more traditional banking services. A number of youthful fintechs have landed banking charters in the past year, including Varo and Square, enabling them to take deposits and extend credit. The growth of capital markets and central banks’ tentative experiments in digital currency further threaten banks’ very raison d’être. 

But banks are coming out fighting. The stumble of some consumer challenger banks over the course of the pandemic—firms such as Monzo and Revolut struggled with sharp falls in revenue and customer complaints over missing funds—has put smartphonefriendly, slick interfaces in sharp contrast with the dour reliability and brand recognition of established banks. Critically, customers appear to remain reluctant to trust digitallynative challengers with salary deposits. Many established banks, spurred by rapid consumer change forced by the pandemic, are hopeful that through strategic partnerships and investments in technology they can be the best of both for consumers: a trusted banking partner, and purveyors of whizzy, consumer-friendly banking experiences.

Customer experience: the currency of competition

This year’s survey reveals a dramatic shift in priorities. Five years ago, as banking costs soared due to new regulatory requirements worldwide, banks were focused on cutting costs and boosting margins to maintain shareholders’ return-on-equity. Today, customer experience and digital marketing are top priorities for executives as they strive to compete with challengers’ frictionless onboarding, budget planning and perks such as free international payments.

In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.

Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.

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Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.