GlobalRetailBanking2022SenseandSustainabilitySeptember2022ByLionelAré,ThorstenBrackert,ChaojungChen,JorgeColado,MurielDupas,AlasdairKeith,HolgerSachse,SamStewart,JuanUribe,andMonicaWegnert01|04|WhySustainabilityMattersLintereenine1GLOBALRETAILBANKING2022:SENSEANDSUSTAINABILITYBOSTONCONSULTINGGROUP2Retailbankshavelongbeenresponsivetoevolvingcus-tomerneeds.Interestinsustainabilityhasbeenrisingforseveralyears.Concernsoverclimatechangeinparticularhavebecomedecisiondriversnotonlyforcustomers,butalsoforinvestors,policymakers,andothers.Indeed,regula-toryauthoritiessuchastheEuropeanCentralBankareintegratingclimateandenvironmentalrisksintotheirsupervisorymethodologiesandbanks’capitalrequire-ments.Morebanksarerespondingbybuildingsustainabili-tyintotheirdigitaltransformationprograms.Thisraisesaquestion:Whatdoesa“sustainable”banklooklike?Manyfactorswilllikelydistinguishwinningbanksofthefuturefromothers.(SeeExhibit1.)There’slikelynosingleoruniversalcombinationthatmakesforasustain-ablebank.Butforeachinstitution,customersandotherstakeholderscanbecountedontohavestrongopinions.Exhibit1-SomeCharacteristicsofWinningBanksoftheFutureCommitment,policy,andtrackrecordofprotectingtheenvironmentandpromotingsocialjusticeEvidentambitiontoplayapositiveroleincustomers’livesandtoimprovetheir?nancialwellbeingCollaborationandpartnershipwithothersforscale,expertise,andcustomeraccessFirmgriponconductandriskmanagement,includingcyber,?nancialcrime,andcomplianceGrowththroughcontinuousinnovationina?uidmarketenvironmentcharacterizedbycompetitionfrombanks,?ntechs,andplayersfromotherindustriesDigitizationofcustomerinteractions,AIforpersonalizedengagement,andsimpli?cationandautomationtodrivedownunitcostsAbilitytorespondtocrisesquicklyandwithpurposeSource:BCGanalysis.3GLOBALRETAILBANKING2022:SENSEANDSUSTAINABILITYofsinlerrrsleBOSTONCONSULTINGGROUP4Acrossindustries,customerstakeESGintoaccountwhensaytheywouldbewillingtopaya10%+premiumforsustainablegoodsuteBCG5GLOBALGLOBALRETAILBANKING2022:SENSEANDSUSTAINABILITYAGoodBankIsaGoodFriendW teandBOSTONCONSULTINGGROUP6resilienceandhealthretailbankdevelopmentgoals?Enablingcustomersto?Drivingfordiversityengagement?Followingregulatory?Supporting?nancialprinciplesandgoodresilienceandhealthretailbankdevelopmentgoals?Enablingcustomersto?Drivingfordiversityengagement?Followingregulatory?Supporting?nancialprinciplesandgoodliteracyESGpracticesThe“good”?Partneringwith?ntechsandothers?Improving?nancial?SupportingUNmake“good”?nancialandinclusion Enablingsustainablebehaviors?Integrating Enablingsustainablebehaviors?Integratingsustainabilityinsolutionsandcustomerjourneys?Engagingwithcustomersonsustainabilitybeyond?nancialmatters?Enablingcustomerstomake“sustainable”?nancialdecisions?Makingbankingsimpleandeasy?Pricingfairlyandtransparently?Driving?nancialinclusion?HelpingcustomerswithlowdigitalcapabilitiesorlimiteddigitalaccessBeingaresponsibleCoaching&BeingaresponsiblecareerstoemployeesdecisionscareerstoemployeesReinforcingtrustActivatingtheecosystem?DrivingfornewActivatingtheecosystem?Drivingfornewstandardsofproducts?Leveragingtheofproducts?Leveragingtheroleoftheindustry?Using?UsingAIethicallyCustomerfocusedSocietyfocusedSource:BCGanalysis.The“good”retailbankpracticesstrongcustomercentricity,actsinwaysthatbenefitBOSTONCONSULTINGGROUP8Mostretailbanksarealreadyina“good”position,startingwiththeirrelationshipswiththeircustomers.Inthewakeofthe2008financialcrisis,financialinstitutionswerebroadlyseenasthecauseoftheproblem.AsCOVIDthenimposedallmannerofrestrictionsonnormaldailyactivity,banksrespondedbybecomingpartofthesolution,offeringeasywaystogetthingsdone.Our2021retailbankingconsumersentimentsurvey,whichcovered25countries,foundthatabout20%morepeoplevoicedincreasedtrustintheirbankduringthecrisisthanin2020,whenthepandemicwasjusttakinghold.Customersarealsoopentobroaderservicesfromtheirbanks:morethantwo-thirdsofsurveyrespondentssaidtheyarewillingtoconsiderser-vicesbeyondsimplebankingfromtheirbanks.The2021surveysurfacedthreemajorfindings:?Digitalbankingisbecomingthenorm.Customersaremoresatisfiedwithmobileandonlinebankingthanwithallotherchannels.?Customersatisfactionwiththeirexperiencewithbranch-esandcallcentersislow,especiallywhencomparedwithdigitalchannels.Peoplewantmorevalue-addedservicethroughthesechannels.?Customersarereadyforbankstotakeonanewrolebeyondfulfillingtheirimmediatefinancialneeds.Customersarelookingtobuilddeeperrelationshipswiththeirbanks.Whilemostcustomerssaytheyhavetwoorthreebankingrelationships,alargemajority(70%)stillsecuredtheirlastproductfromtheirprimarybank.Cus-tomerswanttheirbankstofeellikea“goodfriend”thattheycanturntoforhonestadvice,anda“school”wheretheycanobtainfinancialguidance.(SeeExhibit3.)Andtheytendtohaveconfidenceintheirbanks—evenmorethantheydointheirdoctors—whenitcomestodatatrustworthiness.Traditionalbanksscoreatthetopofthelistinthisregard.(SeeExhibit4.)Moreover,fouroutoffivecustomersarewillingtodisclosemoredatatotheirbanksiftheyvalueanewserviceorfeature.(SeeExhibit5.)Exhibit3-Exhibit3-CustomersWantTheirBankstoFeelMoreLikeFriend”forAdviceanda“School”forFinancialGuidancetodayfeelslikemybanktobemorelikeVaultAplacewhereVaultAplacewhereIcankeepmymoneysafeGoodfriendAplaceIcanturntoforhonestadviceonmysituationSupermarketIknowwhatIneedandIknowwill?nditthereMyGPordentistIdonotenjoyit,butIknowitisimportantAIknowwhatIneedbutI'mopentonewrelevantsuggestionsPersonalshopperIknowIneedsomething,Ijustdon'tknowwheretostartMygymAnimportantpartofmyregularroutineSchoolAplacewhereIcangetsome?nancialeducationandguidance31%31%14%10%14%13%5%13%10%8%10%6%4%Source:BCGREBEXConsumersurvey2021.Questions:Mybanktodayfeelslike…?Iwouldlikemybanktobemorelike…?9GLOBALRETAILBANKING2022:SENSEANDSUSTAINABILITYveaTrustAdvantagetoBuildOnCustomertrustinorganizationskeepingtheirdatasecureonascaleof1–5.85.8sSource:BCGREBEXConsumersurvey2021.estreamsSeeExhibit)ngndBOSTONCONSULTINGGROUP10cessaNewServiceorFeatureAgreeandallowmybanktoaccessthedata,withoutmuchconsiderationAssumethatmybankalreadyhadpermissiontousethedata,andIwouldbeOKwiththatNotagree,becauseIdonotwantmybanktousemydatabeyondwhatisrequiredtooperatemyaccountsAgreeifprovidedwithashortsummaryofwhatdataisbeingusedandwhatitisDiligentlyreadthedetailedtermsandconditions,beforeIagreeSource:BCGREBEXConsumersurvey2021.quiresaccesstopersonaldataeeamanymarketsenseslowfeecashadvancesandimmediatefundsavailabilityoncheckdeposits.e11GLOBALRETAILBANKING2022:SENSEANDSUSTAINABILITYFoundationsInnovationsGreenCreditCards?Carbonfootprintando?set?Rewardforlow-carbontFoundationsInnovationsGreenCreditCards?Carbonfootprintando?set?Rewardforlow-carbontransactionsGreenBorrowingEnergy-e?cienthomes?Retro?tting?EV/LEVsSustainableinvestments?ESGfunds?PersonalizedinvestmentrulesSmartengagement(cash?owsmoothing)?Salaryadvance?Checkadvance?BuyNow,PayLaterSmartengagement(planning)?Controlbasic?nancialneeds/resilience?Planningfor?nancialfutureSmartengagement(goals)?Goal-basedsaving?Trackprogressandadjust?nancialgoalsValuestreamsJJoining(Checkingaccount)MakingTransactionsBorrowingFinancingrmInvestingFinancialWellnessEnablingsustainablebehaviorsCoachingandpersonalizingengagementReinforcingtrustTreatingcustomersfairlySustainabledailybanking?Personalcarbonfootprintbasedonspend?Carbono?set?RewardsconvertedtocharitydonationsSmartengagement(control)Cash-flowDebtmanagementtools:management:?Optimizespend?Creditbuilderloans?Futureviewofdeposit?Creditbuildingtipsandbillpayments?Financialhealthcheck/coachingCustomer'sinterest?rst?Sellingtoneed,appropriacy,anda?ordabilityofproducts?FairandtransparentpricingSimpleandeasybanking?Easytosignupforandeasytoend?Easyproductstouse?Accessibleforunbanked/lowincome?SimplebankingforthosewithlowerdigitalcapabilitySource:BCGanalysis.BOSTONCONSULTINGGROUP12Exhibit7-RetailBanksCanRealizeaPurpose-LedVisionatEachCustomerLifeStageValuestream?Openingapurpose-ledcheckingaccountOptimizing?nancialhealth?Understanding,organizing,&managing?nances?Haveamanageabledebtload?HaveaprimecreditscoreFinancingmyvehicle?BorrowingtopurchaseEV/installachargepointAccessfundsfast?Incomesmoothingandshort-termliquidityMakingtransactions?Spendlessthanoneearns?Paybillsontime&infullBuyingandrefurbishinghouse?Borrowingtobuy/renovateasustainablehome?Su?cientshort-termsavingstocovertheunexpected?Optiontosaveforspeci?cgoals?Abilitytosecure?nancialhealthbeyondtheworkinglifeSource:BCGanalysis.rongrongIndustryTrendsGLOBALRETAILBANKING2022:SENSEANDSUSTAINABILITYSustainabilityandtheBtedaeBOSTONCONSULTINGGROUP14%%USDbn.2016202020212022E2026ENorthAmericaLatinAmericaAsiaPaciicMiddleEastandAfricaEuropeSource:BCGBankingPools2022.…WillHelpFundInvestmentgyldnat15GLOBALRETAILBANKING2022:SENSEANDSUSTAINABILITY6.5%PromotingSustainableBehaviors6.5%6.3%8.8%4.5%Exhibit9-GlobalRetailBankingRevenuesbyProduct6.5%PromotingSustainableBehaviors6.5%6.3%8.8%4.5%USDbn.2,582CAGR1-262015201920202021E2026EInvestmentsPaymentsDepositsConsumer&otherloansMortgagesSource:BCGBankingPools2022.oprBOSTONCONSULTINGGROUP16Exhibit10-Three-QuartersofRetailBanksPlantoIncreaseTheirESGInvestmentsShareofrespondentsplanningtoincrease,decrease,ormaintaininvestmenttowardsESGincomingyears(%)Multi-industryaverageSigni?cantlyincreaseModeratelyincreaseMaintainaspreviousyear(s)Decreasevspreviousyear(s)18%20%3%nsformationSurveysurveynoftheodto17GLOBALRETAILBANKING2022:SENSEANDSUSTAINABILITYExhibit11-ESGHasBecomeaMajorConsiderationforSelectingandPrioritizingDigitalInitiativesShareofrespondentsbylinkbetweendigitaltransformationandsustainability(%oftotalrespondents)ESGisoneoftheprimaryfocusareasfordigitaltransformationESGisakeycriterioninselecting,prioritizingdigitaltransformationinitiativesESGisnotgo/no-gocriterionforprioritizingdigitaltransformationinitiatives,impactofdigitaltransformationonESGismeasuredImpactofdigitaltransformationonESGnotmeasured,orESGnotconsideredessentialcomponentofdigitaltransformationWedonotconsiderESGasanessentialcomponentofourdigitaltransformatione?ort23%20%4%Source:BCGGlobalDigitalTransformationSurvey2021Survey;N=859,Scaledfirstwaveofdigitaltransformation=556,Inmidstofscaling=303.Question:“Doyouconsidersustainability(ESG)criteriainselecting,prioritizing,andassessingyourdigitaltransformationinitiatives?”Sustainabilitydeepdiveislimitedtorespondentswhoconsideritasaprimaryfocusarea,keycriteria,ordiscusstheimpactofdigitalinitiativesonESGwithleadership.BOSTONCONSULTINGGROUP18Exhibit12-GreenMortgagesHelpCustomers(andSociety)intheTransitiontoMoreSustainableHousingStockDimensionsofagreenmortgageacrossthehome-buyingvaluestream:FlexibilityFlexibility&HomeOwnershipComplete&SettleConsider&ApplyMove&RepayChoose&BuyiggerDecidetobuyapropertyResearchoptionsSelectabrokerorlenderSubmitanapplicationFindapropertyBuythepropertyWaitfortheloantobeapprovedWaitforthesettlementFinalizethepurchaseMoveinMakeloanpaymentsLoan?exibilityHomeownershipSearchforeligibleproperty?IwanttoknowwhichpropertyiseligibleforgreenloansBorrowwithincentive:?Borrowatlowerprice?BorrowhigheramountToolsforhomeevaluation&consultation:?HowcanIsaveenergy??CanIrenovatemyhouse??Howmuchisthecostsavings?Seekloanadvice?AmIeligibleforgreenmortgage/greenrenovation??Comparegreenandstandardmortgageproducts?HowmuchcanIborrow?Borrowwithpurpose:?Purchaseasustainablehome?Renovatehouseforenergyoptimization?Switch/buynewequipmenttoimproveenergye?ciencySource:BCGanalysis.AnotherbankofferstermloansandcreditlinesbrandedasPlanet-WiseRenovationSolutions.Andthebankdoesn’tstopatenergy-efficiencyfinancing;itsgreenbankingef-fortsarefurtherburnishedbyalineofMicroloansforGreenBusinessandacreditcardthatdonatesatleast5%ofprofitstolocalenvironmentalprojects.TheYukonHous-ingCorporationoffersloanswitha15-yearamortizationsuitableforsolarpanels.Theloan’sstructuremeanstheconsumeriscash-flowpositivefromYear1,enablingevencash-poorfirst-timehomebuyerstoparticipateinthetransitiontocleanenergy.Bankscanalsousethedailybankingrelationshipaswellastheirpersonalizedengagementcapabilitiestosupportcustomersinenvironmentallyfriendlyandethicalliving.Inmanymarkets,customersappreciatetheassistance.Al-most9in10USandUKconsumerswouldlikebrandstohelpthembecomemoreenvironmentallyfriendly.Asnotedabove,almostallMillennialinvestorsareatleastsomewhatinterestedinsustainableinvestments.BOSTONCONSULTINGGROUP20SustainabilitySustainabilityPlatformssctesrildmaESGBusinessPotentialhibitforutng21GLOBALRETAILBANKING2022:SENSEANDSUSTAINABILITYExhibitBanksstratorsGatewayforsustainablepartnershipsgreensupplythgreendemandAnalysisofgreenmarkettrends?ReviewoflatestnewsevelopmentsentialtoBecomeGreenEcosystemSmallbusinessillustrationKnowledgeHubgreentransformationGreenbankingproductsonbothsidesofbalancesheetGreenEcosystemOrchestratorTransformationfacilitation?Technical(marketplace?FinancialCerti?cationSource:BCGanalysis.BOSTONCONSULTINGGROUP22Thesemarkettrendsaregatheringspeed,drivenbyacombinationofchangingconsumerdemandandgovern-mentpolicies.Witharaftofnewelectricvehiclescomingtomarket,BCGhasestimatedthatby2026electrifiedvehicleswillaccountformorethanhalfoflightvehiclessoldglobally.InDecember2021,theEuropeanCommis-sionissuedanupdateddirectiveonbuildingemissionsthatsetsouthowtheEUcanachieveafullydecarbonizedbuildingstockby2050,includingreducingbuildingemis-sionsbyatleast60%from2015levelsby2030.IntheUS,theCityofNewYork,wherebuildingsgeneratealmost70%ofemissions,hascommittedtoallnewbuildingsbeingtzerobyandareductioninenergyconsumptionforallbuildingsby2025.MoreimportantthanadebateoverhowquicklyESGshareswillriseisthefactthat—withoutquestion—theshareofbankESGproductswillincreaseandeventuallyreplacealmostallnon-ESGbusiness.Thispresentsabigopportunityfortheforesighted.A20%ESG-relatedshareinnewretailbankingrevenuesinthenextfiveyears,forexample,wouldresultinabouta10%shareoftotalretailbankingrevenues—orabout$300billion2025.Retailbanksthatgainearlyshareintheseemergingproductlineswillbebestpositionedtoachieveabove-market