It is undeniable that strong forces are changing the retail banking industry. These changes are due to several different elements such as shifting customers’ expectations, changing technological capabilities, stronger regulatory requirements and fierce competition imposed by non-traditional players. Previously, the industry was rather slow to change, followed more of an evolutionary path. In order to be successful, banks need to prepare themselves to ensure that they are transforming into an innovative institution that is profitable, agile, customer focused and regulatory compliant. The next section will discuss the current competitive landscape of the retail banking industry. Banks are special institutions due to the imperative position they hold in an economy and the huge impact failure of this sector may have on society. However, banks are inherently unstable due to their structural fragility. The low ratios of cash reserves to assets means that most of banks assets are illiquid in comparison to their liability. Banks are also highly leveraged meaning they have few fixed assets and have high levels of debt relative to their equity. Banks are heavily interconnected as borrowers and lenders in the interbank network. The next section will analyse the challenges that are currently facing the retail banking sector. segmented and complex institutions with different layers of management, departments, products, IT systems and distributional channels. Furthermore, retails banks might also serve multiple markets with different regulations and that further complicates their overall structure and operation and adds to the challenges that they are currently facing.The challenges facing the retail banking industry can be divided into five main categories, they are (i) customers, (ii) banks’ internal structures and business models, (iii) product simplification and innovation, (iv) competition posed by non-traditional players and (v) regulation. All these challenges are interconnected, and they can pose a significant threat on the future success of retail banks.
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