REPORT: UNIVERSAL BANKING MODEL

onboarding, credit underwriting, servicing, and more. In addition to increased product penetration across the customer base, income levers include new revenue streams with ecosystem partners, according to the McKinsey report.

The key to success today

Today’s fast-evolving market leaves little margin for underperformance, making it imperative for banks to know where they make a profit and where they do not.

increase customer value through ecosystem partnerships supporting end-to-end journeys for major life undertakings, from search and selection to financing and ongoing management and maintenance.

Finally, the platform for wealth and protection services would compete on the appropriate use of customer data to deliver hyperpersonalised advisory support, enabling investors to make wellinformed decisions about increasing and protecting wealth over decades.

“The most direct path to success is to target profit pools in specific businesses of the universal banking model—daily banking (deposit accounts, payments, and credit cards), navigating life events (with complex lending products), or building and protecting wealth— where the bank can define and deliver a value proposition that can win in our new digital age,” McKinsey’s experts wrote.“Whilst much has been made of the threat from fintechs and Big Tech, we believe incumbent banks will continue to lead in retail banking.”

Each of the three business models—daily banking, navigating life events, and building and protecting wealth—if executed successfully, could provide a muchneeded boost in profitability for retail banks, with target cost-toincome ratios between 40% and 50%, McKinsey added.

Cost-reduction levers would differ for each model but would include optimisation of branch networks and maximum automation of customer acquisition/

The severity of the banks’ challenges depends on the region. In Europe, North America, and developed Asia, retail banks must embrace new technology in order to lower their cost curves, keep up with innovation, and identify new sources of revenue. Possible new revenue could be found in complex lending and wealth protection services via end-to-end journeys and personalisation. Amongst new technologies, they are called to embrace include a digital-first business model and a hybrid-cloud core technology stack.

Meanwhile, banks in China and emerging Asia will have to fight for a share of wallets whilst also focusing on increasing the penetration of higher-value businesses, especially complex lending.

“They should improve the economics for complex lending and wealth/protection through product innovation and segmentation,” the report said.

“In the new world, the winning banks will be those that carefully choose the businesses in which they can lead and commit to building a value proposition, core technology, and operating model fit to win on the digital battlefield,” the reporters concluded.

Text and data adapted from McKinsey & Co’s “Reshaping retail banks: Enhancing banking for the next digital age.” Authors are Ashwin Adarkar, a senior partner in McKinsey’s Southern California office; Stefano Cantù, a partner in Milan, where Enrico Lucchinetti is a senior partner and Zaccaria Orlando is an associate partner; Klaus Dallerup, a senior partner in Copenhagen; and Vito Giudici, a senior partner emeritus in Hong Kong.