According to a recent survey by Boston Consulting Group, 75% of retail banks want to raise expenditure on environmental, social, and governance (ESG) activities, with 20% of them doing so considerably (BCG).
The survey, titled “Global Retail Banking 2022: Sense and Sustainability,” indicates that 38% of retail banks state that ESG is a crucial consideration in choosing and prioritizing digital transformation initiatives, and that ESG is a primary emphasis area for their digital transformation for 25% of retail banks.
The majority of retail banks (60%) prioritize governance issues, such as managing critical risk incidents, constructing cyber resilience, and developing predictive risk analytics to ensure improved preparedness and mitigation.
Nearly half of these banks are primarily focused on environmental sustainability issues, such as reducing energy consumption in offices.
Sustainability has moved up the priority list for all stakeholders, making it the next frontier of competitive advantage for retail banks and a pillar for future growth,” said Thorsten Brackert, a BCG partner and director and coauthor of the report. In addition to promoting sustainable behaviors by customers, ESG-related products could generate considerable returns for retail banks. A 20 per cent ESG-related share in new retail banking revenues in the next five years, for example, would result in about a 10 per cent share of total retail banking revenues—or about $300 billion—in 2025,” Thorsten added.
In contrast, 20% more respondents to BCG’s 2021 retail banking consumer sentiment survey, which spanned 25 countries, expressed improved trust in their bank during the COVID problem than at the beginning of the epidemic in 2020. Despite the fact that the majority of consumers claim to have two or three banking ties, the majority (70%) still bought their most recent purchase from their primary bank. Customers want their banks to resemble a “good friend” to whom they can turn for straightforward counsel (31%) and a “school” where they can get financial instruction (11%).
Customers trust their banks more than they trust their doctors when it comes to protecting personal information, and four out of five customers are eager to give their banks access to more information in exchange for a new service or feature. The analysis predicts that for the years 2020–2025, worldwide retail and private client revenues would increase at a rate of more than 6% annually. Regionally, the Middle East and Africa should experience the fastest revenue growth, at an expected 7.8% a year, followed by Latin America, at 6.9%. Although growth in North America and Europe will be slower, it will still be higher than 5% annually.
While North America still accounted for the largest portion of revenues in 2020, Asia Pacific is quickly catching up. The main drivers of revenue growth will be payments and deposits, with payments predicted to expand at a 6.3% annual pace as more consumers choose internet, credit card, and other non-cash transactions. As customer spending rises as COVID declines, consumer and other retail loan revenues could recover to growth rates of around 4%. While mortgage growth will be restrained as interest rates increase, investments will grow at an appealing rate of over 5% annually.
“Retail banks have a critical role to play as societies and their institutions address social and environmental challenges,” said Sam Stewart, global leader of BCG’s retail banking segment and coauthor of the report. According to him, “as they consider a redirected future, retail banks should ask themselves a couple of existential questions: What will our customers be looking for beyond straightforward financial products and services in the next few years? And how can we align our business goals with meeting those needs before our competitors do so first?”