Across the world, bank jobs are being reduced drastically as cost cutting measures to deal with the daunting problems of faltering performances, significant negative impacts on the return on equity (ROE), and macroeconomic volatility.
Writing in the Financial Times, under the caption: “Thousands more bank jobs under threat,” Noonan and Arnold (2015) alluded to the fact that big banks in Europe and the US announced 100,000 new job cuts this year, and thousands more are expected early next year, due to tougher post-crisis regulations, ultra-low interest rates and sluggish activity among clients. The complexities surrounding the new regulations for capital, liquidity and funding mean all banks must hold more equity; and that means they have to earn higher profits to keep return on equity at the levels investors demand.
In addition, digital transformation could also be a driver of further headcount reduction in the longer term, with retail banks cutting branches in favour of online services and investment banks cutting back offices in favour of online technologies such as block chain (Noonan and Arnold, 2015).
The Caribbean is neither immune from the widespread impact of the new banking era nor new regulations. In fact, Caribbean countries, as a result of the increased regulations, are likely to see a similar trend with banks further reducing their workforce. The recent turmoil in the banking sector which included the ECCB putting the largest indigenous bank in Antigua (ABI Bank) in receivership demonstrates the shaky ground under us. This unfortunate situation in which we now find ourselves stems from years of inefficiency and wrong strategies that resulted in banks operating within the region serving a small percent of the market instead of focusing on the real market needs.
Of note, if the banking industry in the Caribbean intends to usher in the new era of banking, it cannot be business as usual. From the competitor to the customers, processes to people, the banking industry in the Caribbean must adapt to these inevitable changes in new technologies, new compliance regulations and security threats. And to borrow a quote from Mahatma Ghandi, “in order for us to rise from our ashes and believe in ourselves” our banking industry must revolutionise itself.
However, the evolution is just beginning. Banks need to change their mindset in redefining customers’ expectations and reshaping the boundaries of the industry and the regulations need to support it.
According to Accenture (2015) in a piece entitled: “Being digital: digital strategy execution drives a new era of banking,” banks need to evolve their culture externally and internally by being digital in order to become an “everyday bank”—one that meets a range of lifestyle needs in offering both financial and non-financial services solution.
Accenture (2015) estimates that up to 32 percent of banking revenue are at risk from new digital business models. If 32 percent of revenue is at risk, this implies that there is the potential of less demand for loans from customers, less business transactions, and the overall potential to drive down the return on equity (ROE). Therefore, it is safe to say that being digital, lies at the heart of the future of banking and banks must adopt this digital mindset to avoid the digital disruptors negatively impacting on the banking industry.
Given the expose in the preceding paragraphs, an important question arises: Where do these developments leave the banking industry in the Caribbean? To remain a “going concern” the banking industry in the Caribbean needs to make fundamental changes to its traditional model on how it operates by repositioning their services and being digital.
The key critical areas that must be addressed going forward include: being digital on the outside by improving the customer experience by offering more flexible options such as mobile banking, mobile insurance, mobile point of sale; and on the inside through changes in its technology platform and re-orienting the internal banking practices such sophisticated data analysis in investment management, data driven credit ratings, and peer to peer lending and investments (Accenture 2015). These facilities better reflect the infrastructure of the new banking era and they help in the evaluation of banks’ intrinsic credit qualities.
However, the speed of transformation is critical in order to secure sustainable business growth. We need to be actively reinventing the business model to deal with the new realities in customer behaviour such as innovative attackers, changing global growth patterns, embracing cultural changes and enhancing value creation by balancing the interest of the shareholders and the broader society. These changes can go a long way in ensuring that internal processes are sound to the extent that they can potentially influence employees’ mindsets.
Everything said, the reality facing the Caribbean is that the rubber-stamping bankers will face monumental challenges if they don’t adapt to the new banking era!
Brian Francis is a senior lecturer at the Department of Economics at the University of the West Indies, Cave Hill Campus.
banks in Dominica are a joke, slow, horrible customer service, defines the experience, for example NBD there is this new teller, he does not have the decency to tell people morning or greet them in anyway… HORRIBLE CUSTOMER SERVICE