Navigating the future of retail banking

The retail banking landscape is changing at an unprecedented pace, bringing both significant challenges and exciting opportunities for financial institutions.

"The nature of competition in retail banking has fundamentally shifted. Historically, banks could rely on direct interactions with customers to build and maintain relationships, but this dynamic has changed significantly."

To stay competitive in a world of increased competition, commoditization and heightened regulatory demands, banks need to adopt proactive, comprehensive and forward-thinking strategies. 

The State of Retail 

Over the past decade, the retail banking sector has undergone a profound transformation. Rapid technological advancements, evolving customer expectations and stringent regulatory requirements have fundamentally reshaped the industry.

The global retail banking market surpassed $3 trillion in revenue mark last year, according to McKinsey. While rising interest rates have temporarily improved banks’ net interest margins, the global outlook for retail banking is now more muted as external forces put pressuring on key economic measures such as asset growth, margins and operational and risk costs. 

Returns in the banking industry globally have fallen significantly, and the Australian market is no exception. For instance, the return on equity (ROE) in ANZ's Retail division has dropped from about 30 per cent to around 10 per cent over the last decade.

There have been some tailwinds, with productivity gains through digital and artificial intelligence advancements. A mix of macroeconomic trends and these advancements have boosted growth and profitability, according to McKinsey. 

However, the nature of competition in retail banking has fundamentally shifted. Historically, banks could rely on direct interactions with customers to build and maintain relationships, but this dynamic has changed significantly.

Today, intermediaries such as brokers and mobile wallets have fragmented the primary customer relationship, pulling customers into their ecosystems and gaining access to valuable customer data. 

This shift is further compounded by the rise of new services that intermediate the relationship between banks and customers, offering seamless and low-friction solutions for managing payments and savings across multiple banks.

As a result, traditional banks are increasingly relegated to the role of 'manufacturers,' focusing on scale and efficiency to remain competitive. This trend is expected to accelerate as regulators continue to stimulate competition and create customer choice through initiatives like open banking.
Retail banking is changing, and it’s changing fast. 

Opportunities and Challenges 

It’s undergoing a technological revolution, with innovations such as generative artificial intelligence (AI), open banking and cloud computing reshaping the competitive landscape, according to Capgemini. Retail banks are balancing resilience and innovation, leaning into sustainability and cloud opportunities, with tailored products and premium experiences.

Moreover, the exponential pace of new technologies – including embedded finance, open data, digitization of money, decarbonization, digital identity and fraud prevention – is influencing how banks operate and serve customer needs, according to Deloitte. These advancements enable banks to offer more personalized and efficient services, enhancing customer satisfaction and loyalty, as we do with ANZ Plus. 

And the pace of investment is not slowing. The use of generative AI in the financial services sector could lift annual industry revenue by as much as $340 billion, on McKinsey estimates. This highlights the potential for AI to drive growth and profitability in the banking industry.

As with everything, new opportunities bring new challenges and technological enhancements like AI are no exception. AI can enhance customer service, streamline operations and provide valuable insights through data analysis. 

Regulatory Changes

The bar is rising for what regulators and the community expect banks to do, including keeping data safe, protecting customers from scams and fraud, defending against cyber-attacks and ensuring privacy.

There has been 1200 pages of new laws and regulations introduced in the last four years which means banks need to adopt new processes and technologies to meet higher expectations.

The operating costs associated with meeting regulatory requirements remain significant and capital requirements are likely here to stay, according to Deloitte’s latest Banking Regulatory Outlook. But this rising regulatory bar ultimately leads to better customer outcomes by fostering a more secure and trustworthy banking environment.

By embracing these higher expectations and adopting innovative technologies, banks can serve customers more effectively. This not only meets regulatory demands but helps build stronger customer relationships and trust. 

Strategic Response 

Since 1828, ANZ has been a purpose-led organization, supporting customers and communities in Australia through challenging times. Today, with rising living costs, unaffordable housing and complex money management, our customers need us more than ever.

Recognizing the need for change, we've taken bold steps towards a new way to bank. Our principle is simple: if we focus on improving customers' financial wellbeing – helping them create a sense of control over their finances – they will reward us with their business and, most importantly, their trust. Because when our customers succeed, so do we. 

In response to the evolving landscape of retail banking, which we recognised early, ANZ made the strategic decision to rebuild and reshape our business through ANZ Plus. 

ANZ Plus is a comprehensive digital banking platform designed to provide customers with a safe place to keep their money, better insights into their spending and personalized financial wellbeing support. This platform includes features such as financial wellbeing coaches, in-app human support, advanced card controls and the ability to set and manage multiple savings goals.

We are currently mid-journey in this transformation and are now focused on five key deliverables: finish building the ANZ Plus banking platform, build financial wellbeing tools for our customers, migrate our customers onto our new platform, maintain a safe and well-managed business and deepen customer engagement and support. 

We shifted towards a digital-first, human-supported model, aiming to distribute our own and third-party products – using our strong customer relationships. Central to this strategy was our customer focus. We identified customer needs and journeys and built the technology platform, processes and data infrastructure to suit. 

As of this week, we have 875,000 customers on ANZ Plus and more than $16 billion in deposits. With around 30,000 customers joining each month. A key to this progress was the unification of customer data and systems.

By creating a single, high-quality view of the customer, we can deliver seamless and personalized services. Our transformation is supported by a robust technological foundation, turning what was once a competitive weakness into a strength.

Our focus on financial wellbeing, with features like Savings Goals and card controls, aims to help customers make better financial decisions and improve their financial health. Almost half of ANZ Plus customers are using the financial wellbeing features, with about a third having a savings goal. 

Such a transformation requires a supportive and adaptive culture. The bank has prioritized data-driven decision-making and a strong focus on innovation. We have a detailed plan for migrating our first existing ANZ customers to ANZ Plus next year. Testing is already underway

Meanwhile, we are continuing to simplify by decommissioning more than 40 products our customers no longer need.   

Looking Ahead 

While the journey is far from over, we are well-positioned as retail banking continues to evolve. Our focus on deepening customer engagement and supporting a high-performing team will be critical.

Our transformation is complex and interconnected. We’ve made enormous progress in both the transformation and strengthening the underlying health of the business.  

It's an exciting time. We’re building the best bank for customers seeking control and peace of mind in their financial lives. It will be better for customers, better for our people and ultimately, better for our shareholders.   

Maile Carnegie is Group Executive, Australia Retail at ANZ.