The Post Pandemic Opportunity for GCC Retail Banks


BCG’s annual Global Retail Banking 2021 Report shows the COVID-19 challenge posed to GCC retail banks. The retail banking revenue pool between 2019 – 2024 will grow in the range of +1.6 percent or shrink by -2.1 percent

Godfrey Sullivan, Managing Director & Partner BCG

Dubai: While retail banks globally have reacted to the COVID-19 crisis with speed, dexterity, and purpose, further challenges await in their quest to enhance revenues, upgrade digital capabilities, and build a strong, stable future. Boston Consulting Group’s (BCG) new report, titled ‘Global Retail Banking 2021: The Front-to-Back Digital Retail Bank’ emphasizes the need for banks around the world and in the GCC to retool their offerings and strategies. 

The report showed the projected revenue outlook of retail banks in key economies in the GCC, which includes the United Arab Emirates (UAE), Kingdom of Saudi Arabia (KSA), and Kuwait in three retail banking revenue growth scenarios. In all three projected scenarios of 2019 – 2024, revenue growth is subdued when compared to the strong growth recorded in 2014 – 2019, a 5.5 percent Compound Annual Growth Rate (CAGR):

  • 2019 – 2024 quick-rebound scenario: estimated to grow from $26.4 billion in 2019 to $28.6 billion in 2024, a CAGR of +1.6 percent
  • 2019 – 2024 slow-recovery scenario: expected to shrink by a CAGR of -0.1 percent to $26.3 billion
  • 2019 – 2024 deeper-impact scenario: the revenue pool is projected to shrink by a CAGR of -2.1 percent

“The pandemic has taken a toll on the retail banking sector, and we believe that a slow-recovery scenario is most likely to occur for GCC retail banks,” said Godfrey Sullivan, Managing Director and Partner, BCG. “In this scenario, the revenue pool of regional retail banks will approximately reach the 2019 level only by 2024, essentially a flat market.”

Findings from the report indicate that the most affected retail banking products in regional banks because of the pandemic are consumer loans and deposit revenues. While loans (mortgages and consumer loans) and deposits accounted for 80 percent of retail banking revenues in 2019, recent events highlight that payment, mortgage, and investment products are now likely to be the main sources driving retail banking revenue growth. The acceleration of digital payments and e-commerce adoption in the GCC will be a factor to contribute and benefit the revenue growth.  

“In a low revenue growth market, bank growth comes from taking the market share, and they compete by providing more appealing and relevant offerings, which is better for the end-users,” said Sullivan. “With shifting consumer preferences and increasing population growth, a lot more focus on better implementation of data and analytics in the organization and cross-selling their full breadth of products to their existing customer base is key to remain competitive.”  

In the current market conditions, retail banks face tremendous challenges to improve customer experiences, grow revenue, build sustainable capabilities, reduce costs, and enhance the quality of their controls. They must start to reimagine their strategies and consider the following:

A New Cost Paradigm. The successful retail bank of the future cannot operate with the cost structure of the present and remain competitive. BCG’s analysis shows that the operating costs of the best banks are already about 40% lower than those of the typical bank, and they have roughly 50% fewer employees. These banks make larger and more sales, and they do so with branches that are less transaction-focused. Specifically, the top banks globally open 69% more accounts per branch full-time equivalent and conduct 80% fewer branch transactions per customer, compared with the typical bank. Banks that are not planning now for a major step-change in their cost structure will find themselves at an unsustainable competitive disadvantage—perhaps sooner than they think.

Digital Value Streams. Retail banks can achieve their goals by focusing on their key value streams—a series of value-adding activities that they can undertake to produce a result that customers want—and by redesigning and digitizing them from front to back. Successfully implementing an integrated approach requires the following: bold business goals, reimagined end-to-end customer journeys, simplified and automated processes, improved risk controls, transformed technology, and integrated teams. 

A Stacked Operating Model. By digitizing their main value streams, banks will fundamentally change the way all functions operate, including distribution, relationship management, risk and compliance, and IT. Banks can accelerate the impact and optimization of select capabilities, such as customer engagement, but they will fully address their revenue, cost, and control challenges only with an operating model that is based on front-to-back value streams and built around new capabilities and ways of working.

“The retail bank of the future requires organizational change and building digital capabilities, which takes time. With low-interest rates likely to continue, fee income becomes key, including enhancing wealth management offerings as banks look to advise their clients on better ways of growing and protecting their wealth. In addition, addressing key priorities, such as digitizing all major value streams will help regional banks manage the added pressure from the global pandemic and start to build the bank of the future,” concluded Sullivan. 

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