The future of retail banking

​The Canadian banking landscape has reached a pivotal junction. COVID-19 catalyzed changes already in motion, and banks are now looking to the future. Banking is changing to reflect the new ways that Canadians live and work, and as fewer people opt to do their banking in person, banks are becoming more ingrained in other platforms, such as social media and e-commerce. As these alternative distribution channels grow, banks have an opportunity to become connected enterprises, connecting internally and with the market while putting the customer experience at the heart of everything they do.

The variety of financial services players is growing including non-banks who are offering an increasingly broad range of financial products and services. We see three distinct retail banking models emerging: universal banks, transaction-focused banks, and ambient banks. Universal banks – among them Canada's major financial institutions – offer a broad range of services. Transactional banks leverage their abilities to excel in niche areas, such as domestic and cross-border payments. Ambient banks work with technology and infrastructure providers to deliver a more embedded financial services experience to their customers.

As a result of these developments, Canadian banks find themselves in an increasingly competitive landscape that includes neo-banks and other non-traditional players. Customers are looking for seamless, digital, and valuable experiences, and there's a growing expectation that solutions will be both environmentally and socially responsible.

To achieve great customer outcomes and increase loyalty in this rapidly changing environment, agility is essential. As banks invest in digital capabilities, they will need to address the following key questions:

• Which digital platforms will they use to offer services?
• What new physical channels should be used to distribute their products and services?
• How will they leverage these platforms and channels to optimize the experiences of existing customers and attract new customers?

While universal banks have traditionally owned their customer relationships and have placed great emphasis in keeping them, the future of customer experience lies in greater access to and integration with third party technology platforms and digital solutions. This will enable greater personalization of customer experiences and easier, more convenient interactions. The transactional banking model focuses on a narrower set of services targeted at specific customer segments. The ambient bank supplies a service with a much less visible relationship between the financial institution and the end customer. They do this by embedding financial services seamlessly into other customer activities. They are the invisible agents embedded within and drawing upon everyday Internet of Things (IoT) devices to facilitate transactions. Traditional full-service banks are actively exploring the ambient bank model.

The ability to ingest, analyze and draw insights from the exploding amount of data is critical to the future success of all three banking models. Enabling customers to instruct their incumbent financial service providers to share their account and transactional level data with other accredited third parties in an open banking ecosystem is the next frontier for Canadian banking. It has the potential to increase competition and accelerate the pace of innovation to the benefits of consumers and businesses. As a close follower to other countries that have already introduced open data sharing systems, Canada will implement a "best of breed" model. However, several questions still need to be answered leading up to the go live date in 2023. In particular:

• How will the accreditation process work and who will administer it?
• What will be the common rules governing privacy, security, and liability?

The answers to these questions will determine how broadly and how quickly financial service organizations begin to participate in the new ecosystem.

KPMG is helping clients respond to these emerging opportunities by developing what we call a Connected Enterprise. We harness technology to help our clients build a connected enterprise where your front, middle and back offices are aligned. An enterprise where you're more connected with your customers, employees and business partners. An enterprise that enables you to respond quickly to market signals and pivot to seize opportunities as they arise. KPMG Connected Enterprise is our approach for digital transformation. It's an industry-led, customer-centric approach that connects all your processes, functions and relationships and focuses them on meeting customer expectations, creating business value and driving sustainable growth.

Contact our banking team to learn more about how KPMG Connected Enterprise helps align organizations so they can respond more profitably to evolving market conditions.