Retail Banking Your Future, Now - Knight Frank
Occupier ServicesRetail BankingYourFuture,Now
Occupier ServicesDEFINITIONSRETAIL BANKINGRetail banking, also known as consumer banking,is the provision of services by a bank to individualconsumers. Services offered include savings andchecking accounts, mortgages, personal loansand debit/credit cards.Source: InvestopediaTRADITIONAL RETAIL BANKSThe UK retail banking sector is dominatedby a few very large banks. The big five areLloyds Bank, Barclays Bank, HSBC, Santander UKand The Royal Bank of Scotland (RBS).CHALLENGER BANKSThe term challenger bank generally refers to anybank that isn’t one of the big five. They are a broadchurch that includes non-bank brands, digitallyfocused and specialist players. Some are oldand established while others are brand new.FINTECHFinTech companies depend on technology andsoftware to operate. They are generally more flexibleand scalable. In relation to retail banking they areadopting three main strategies; Competing directly with other industry players Collaborating with other industry players Offering complementary services in areas includingcompliance, payments and data analyticsIn this report we are referring to FinTech companiesoperating in the retail banking space.Retail Banking
Occupier ServicesRetail BankingContents2 Understanding Change in the Retail Banking Sector4 Five Trends Shaping Your Future11 Trends in Action24 Editorial: Retail Banking is Finding its Cool Again28 Retail Banking: Market Overview1
Occupier ServicesRetail BankingUnderstandingChange in theRetail BankingSectorThe UK retail banking sector is being transformed by a range ofpowerful forces. The economic environment continues to bringuncertainty; regulatory requirements are evolving; customers aredemanding greater personalisation combined with excellent customerservice; and at the same time technological innovation is challengingtraditional business and delivery models while ushering in a furtherset of challenging competitors. Where does this leave the banks?To remain relevant and robust in this new operating environment,retail banks must continue to innovate both products and processes;implement a marked cultural change; drive an unstinting focus on costreduction and efficiency gains; and develop an operational model thatnurtures innovation, responds to regulatory impacts, is technologicallyadvanced and highly customer-centric. Quite a challenge.Against this backdrop banks must rethink their real estate. Branchnetworks will need to be further rationalised and repurposed, despitethe sensitivities that such moves bring. Back office functions will needto be seen as more integral to a successful banking operation thanthey have perhaps been to date. Head office functions meanwhile willneed to be reviewed in terms of cost, regulatory compliance and maybe subject to relocation. Furthermore, as the fortunes of retail banksbecome more dependent upon innovation and technological delivery,they will need to access and accommodate non-traditional tech andcreative talent and this will force change in both locationand working environment.This is a time of great change in retail banking. That change will beclearly in evidence in the real estate decisions of the retail banks.In light of this, we are pleased to introduce you to our latest sectorresearch offering, which explores the future of the retail banking sectorand the operational and real estate implications of this transformation.
Occupier ServicesRetail BankingThis report provides: An overview of the five most disruptive trends shaping the retail bankingsector over the next five years. These trends are the result of extensivedesk based research and detailed engagement with industry experts andinsiders. They provide a clear view on the future sector dynamic. A monitor on how these trends are currently playing out in the market,including major news stories, top transactions and real estate market gossip.This provides real evidence of how the sector is responding to change. An editorial explaining how retail banks are finding their cool again,increasing the urgency to implement innovation-led occupational models.It is a time of great change for the retail banking sector.The aim of this research is to provide full exposure to the forces of change,illustrate market responses and provide practical tips on how to respond.53
Occupier ServicesTenantRepresentationLegal ServicesSector ProfileRetail BankingFive TrendsShapingYour FutureIn partnership with insight and innovation consultancyFreshMinds, we undertook extensive research intothe medium term future of the retail banking sector.The scale and impact of sector change is summarisedin the following five trends.
Retail BankingOccupier Services1The competitive threat from challengerbanks, FinTech and new market entrantswill reach unprecedented levels.Retail banking will become increasinglycompetitive and dynamic, elevating the riskof losing vital market share. In 2015, totalpre-tax profits for challenger banks rose by 194 million while the big five saw a drop of 5.6 billion¹. While traditional banks areencumbered by their past, the new breed ofretail banks are starting from scratch; centred onthe customer, technology and agile innovation.The competition will be emboldened bychanging consumer demands and technology.Regulation will continue to open up the marketto competition, from the UK’s open bankingreforms to the European Payment ServicesDirective (PSD2). Both initiatives will forceretail banks to share their customer data withthird parties such as retailers and technologycompanies.¹KPMG: A new Landscape. Challenger banking annual results.PwC: Reshaping your cost base for today’s market realities25As competitors eat into market share, traditionalretail banks need to drive efficiency whilechanging the business model to focus on thecustomer and areas where they can gain distinctcompetitive advantage. A PwC report calculatedthat banks need to reduce costs by 15-20%and in some cases by as much as 30-40% inorder to remain competitive2. As a result,successful banks of the future will be a lotleaner and relentless in their pursuit of efficiencyand productivity. In parallel, traditional retailbanks will accelerate transformation strategiesand invest in customer service, technologyand data analytics.Life will not be free-wheeling for the so calledchallengers, who are within themselves a variedgroup. In an increasingly congested marketnot all will thrive, resulting in a dynamic andever changing marketplace.
Retail BankingOccupier ServicesThe continued rise of the challengersThe Challenger Landscape in Retail BankingExample companies in each categoryTHE ESTABLISHED CHALLENGERSDIGITALLY LED ALLIED IRISH BANK (UK) MASTHAVEN BANK ATOM BANK N26 ALDERMORE BANK METRO BANK BABB REVOLUT BANK OF IRELAND UK ONESAVINGS BANK FFREES STARLING BANK CLOSE BROTHERS PARAGON BANK FIDOR BANK TANDEM THE CO-OPERATIVE BANK SECURE TRUST BANK IAM BANK ZOPA CYBG SHAWBROOK BANK MONZO(CLYDESDALE AND TSBYORKSHIRE BANKS) VIRGIN MONEY FIRST DIRECT HANDELSBANKENSPECIALISTS BANK OF LAMBETH LINTEL BANK BRITISH BUSINESS BANK MONESE CAMBRIDGE & COUNTIES BANK OAKNORTH CHARTER SAVINGS BANK REDWOOD BANK ASDA MONEY CIVILISEDBANK THE SERVICES FAMILY JOHN LEWIS FINANCE COCONUT THINKMONEY M&S BANK COMMUNITY SAVINGS TRIODOS BANKSUPERMARKET BANKSBANK ASSOCIATION SAINSBURY’S BANK HAMPSHIRE COMMUNITY BANK TESCO BANK HAMPSHIRE TRUST BANKFINTECH COMPANIES OFFERINGBANKING RELATED SERVICES AZIMO KREDITECH CURRENCYCLOUD LENDINVEST CURVE LOOT DIPOCKET MARKETINVOICE FAIRFX POCKIT FUNDING CIRCLE SOLDO IWOCA TIDE IZETTLE TRANSFERWISE KABBAGE YOYO WALLET KANTOXSource: Knight Frank, Banking Technology, KPMG: A new Landscape. Challenger banking annual results.THE NEXT WAVE?Large digital platform companies and other non-bankingcorporates, many of whom are already active in the paymentssector, could extend further into retail banking.
Retail BankingOccupier Services2Retail banking services will becomehighly bespoke and personalised, asset product portfolios become a thingof the past.Increased choice, digital accessibility andregulatory changes that make it easier to switchproviders will empower customers to becomemore demanding. A new breed of customer willdemand seamless digital delivery, excellencein customer service and greater personalisation.Banks that do not provide the best customerexperience risk losing revenue and customerloyalty. Four of the top five reasons why bankingcustomers consider switching to a non-bankprovider relate to customer experience3.Outside of challengers and new marketentrants, we expect to see large scalerestructuring and cultural change as traditionalretail banks completely re-wire operationsaway from product silos and towards customercentricity. Product focused organisations aregenerally one size fits all, fixed around silosand rigid. Customer-centric organisations areflexible, cross-functional, innovative and putthe customer at the centre of the organisation,viewing everything from their perspective.Challengers and new entrants will have toensure they sustain a relentless customerfocus in order to secure growth and trust.Gleaning valuable customer insights from thevast quantities of data that banks hold will befundamental to success, resulting in this partof the back-office coming to the forefront.Accordingly future in-demand skills will includeclient-insight and analytics personnel.3 Source: EY and Efma: Tailoring the data driven customer experience.767%of global bankingcustomers wouldshare more datawith banks in returnfor new benefits.Source: Accenture global study of nearly 33,000 financial services customersacross 18 markets.
Occupier Services3Retail BankingRetail banks face an innovationimperative and will respond throughwidespread restructuring, partnershipsand acquisitions.The retail banking ecosystem is expanding,creating an intensely competitive marketplacewhere each player is pulling out the stopsto acquire loyal customers. To survive andflourish retail banks must continually innovate,developing differentiated services and solutionsthat meet ever-changing customer needs.In response, we anticipate seeing an increasein the following innovation strategies; Greater collaboration between banks,FinTech, academia, customers and evenother industries. Perfect marriages includeincumbents who have scale, brand andvast amounts of valuable customer datacombining with FinTech companies whohave the tech know how, excellence incustomer services and ability to attractyoung digital talent. Greater funding of promising FinTechcompanies with options to take equity-stakes. In-house innovation initiatives such as staffincentives, the creation of firm-wide innovationstrategies and the provision of ‘lab’ spaceto encourage and nurture new ideas. Acquisition of tech-savvy companies bymature banks in order to directly accessinnovation and remove competing productsfrom the market place.86%of incumbentsexpect to increaseFinTech partnershipsin the next threeto five years.Source: PwC Global FinTech Report 2017.
Retail BankingOccupier Services4Direct, digital access to customerswill place further pressure upon existingbranch networks and shift attentiontowards investment in technology,process infrastructure and tech talent.Mobile and online banking will become theprimary distribution channels for retail banks.In 2010 there were 86 million mobile consumerbank interactions, in 2015 this rose to 895 millionand by 2020 it is projected to be over 2 billion4.This will require a seamless digital experienceas customers demand access via multipledevices 24 hours a day.9Consumer-Bankinteractions by distributionchannel 2015-2020 (Millions)201574m472m705mTraditional retail banks will accelerate theirdigital transition, forced to undergo radicaltransformations of their back-end IT infrastructurein order to optimise their operations to the newdigital landscape. A shift to digital will demanda greater proportion of digital talent in a highlycompetitive market. All industry players willhave to look at their talent attraction andretention strategies, and in particular howthey can compete with technology companies,for the best employees.Banks have already significantly reduced theirbranch networks and this will further accelerate.That does not mean the branch is dead, butits form and function will pivot towards beinga place for showcasing the latest technology,offering information and advice focused onhigher value products and incorporating morecollaborative areas for customers.Over the near term branches, could actuallyoffer retail banks operational advantagesthrough direct engagement with customers onnew ideas and in meeting demand for a branchpresence in poorly connected regions.895m2020268m528m2,341mKeyOnlineSource: BBA.org4 Source: BBA.org64mTelephoneMobileBranch
Occupier Services5Retail BankingBanking process automation andartificial intelligence will gain momentum,delivering cost savings and improvedoperating efficiency whilst also offeringopportunities to differentiate in anincreasingly competitive marketplace.Faced with the rising costs of regulatorycompliance, separation of retail and investmentbanking divisions and IT transformation,banks will use robotic process automation andartificial intelligence to deliver the next wave ofcost savings and operating efficiency. Roboticprocess automation involves the automation ofprocesses using software. It generally requires ahuman to input instructions. Artificial intelligenceis technology that learns from its experienceand feedback and has certain cognitive abilities.Applications vary from automating manual,time-consuming processes to conversing withcustomers in the form of chat bots.We believe that the workforce will be redefinedas a result of such technological advances tofocus on higher value work, with new teamscreated to manage and develop automationand artificial intelligence tools.The advance of robotic process automationand machine learning offers banks a uniqueopportunity to gain a competitive advantagethrough analysing the vast amounts of datathat can be produced via these technologiesto deliver differentiated and personalisedcustomer solutions and services.75%of costs at financialservices firms could becut by robotic processautomation.Source: KPMG: Rise of the robots.
Trendsin ActionThe five trends we have identified are already impactingon retail banks. What follows are a series of sectorand property market observations which illustrate initialoperational and real estate responses.
Occupier ServicesRetail Banking1The competitive threat from challenger banks,FinTech and new market entrants will reachunprecedented levels.A new retail banking ecosystem is emerging as a waveof challengers gain banking licenses, platformcompanies enter the market, the rapid growth ofFinTech start-ups continues and more establishedchallengers scale-up. That being said, some challengerbanks are encountering teething problems whileseveral traditional retail banks reported improvedearnings. The industry is entering an exciting anddynamic phase.November 2017N26 is preparing for a UK launch.The bank set up a waiting list for prospective customers.Launched in Germany and Austria in January 2015, N26began as a current account with a Mastercard.Source: FinextraOctober 2017Metro Bank announced a 10% rise in depositsduring Q3 2017.The challenger bank reported an increase in depositgrowth to 10.8 million quarter on quarter. Underlyingpre-tax profit was up 77% to 7.2 million.Source: Evening StandardOctober 2017Barclays reported a 31% increase in third quarter profit.Barclays reported Q3 2017 profit before tax of 1.11 billion,up from 837 million a year ago. The bank also confirmedits plans to create a separate entity within the group to allowit to “ring-fence” its UK retail bank.Source: FT AdviserOctober 2017Lloyds Bank reported strong Q3 2017 profits.Q3 2017 profits were 1.95bn, representing a 141%year-on-year increase. The cost-to-income ratio fellby 1.8 percentage points.Source: CITY A.M.August 2017Challenger bank Redwood opened for business.Redwood will focus on the SME market. The bank iswholly-owned by Redwood Financial Partners, in whichWarrington Borough Council has a 33% stake. Redwood isheadquartered in Letchworth and its main focus will initiallybe in that county – and Bedfordshire, Buckinghamshire, andWarrington, where Redwood has also opened a Warringtonand North West regional office.Source: Banking TechnologyOctober 2017Uber launched a credit card.Uber has partnered with Barclaycard US to launcha rewards-heavy Visa credit card.Source: Finextra
Occupier ServicesRetail BankingAugust 2017Worldpay agreed a tie-up with Vantiv for 10 billion.U.S. credit card processing company Vantiv agreed to mergewith Worldpay. The combined company will process some 1.5 trillion in payments and 40 billion transactions throughmore than 300 payment methods in 146 countries and 126currencies, with a combined net revenue of over 3.2 billion.New entrants and established challengers aredriving fresh demand for space. Common real estaterequirements include; flexible, agile space reflectiveof modern ways of working; design and fit-out thatdemonstrates the company’s brand and culture;hyper-connectivity and a location that can attract andretain premium talent. In Central London, establishedchallengers appear to be favouring traditional financialservices locations as they relocate to accommodateexpansion plans, whereas start-ups are more dispersed.Source: ReutersJuly 2017Revolut’s crowdfunding campaign was oversubscribed.More than 40,000 Revolut customers pre-registered for thecrowdfund, meaning that 17 million has been pledged so far.Revolut is a digital wallet that lets users receive exchange andsend money in a variety of currencies. The company has beenadding new features including personal IBAN accounts, travelinsurance and business accounts.Source: TechCrunchMay 2017Civilised Bank granted a banking licence.The bank, backed by investment manager Warwick CapitalPartners, will focus on small businesses. While it will not haveany physical branches, it will have employees who visit thelender’s customers at their premises. Chris Jolly, its Chairman,who has previously worked for Merrill Lynch, said: “We wantto return to a civilised way of banking with personal servicebacked by effective technology.”Source: The Telegraph13September 2017Starling Bank agreed to take space at 2 Finsbury Avenue.The bank will occupy 14,500 sq ft on the 3rd floor ofthe building.Source: Property WeekJuly 2017Atom Bank remained committed to Durham.Atom Bank secured space at the Rivergreen Centre, on theoutskirts of Durham City. The open-plan office has been craftedto promote collaborative working and flexibility for future use.Source: The Northern EchoJune 2017Aldermore Bank secured space at the MonumentBuilding.The established challenger bank signed a lease to take10,428 sq ft of office space at the Monument Building in theCity of London. The space will accommodate its growingLondon office.Source: Knight Frank/BQLive
Occupier ServicesRetail BankingJune 2017Finastra took three floors at 4 Kingdom Street, Paddington.The software FinTech signed a lease to occupy the first,second and third floors at 4 Kingdom Street, totalling 42,400sq ft. Finastra, formed in 2017 by the combination of Misysand D H, develops software for financial institutions, including48 of the world’s 50 largest banks.February 2017Hampshire Trust Bank moved into new headquartersat 55 Bishopsgate.The specialist bank moved from its 7,500 sq ft office at131 Finsbury Pavement to a custom designed 21,000 sq ftheadquarters at 55 Bishopsgate. The new office providesroom for expansion, following positive financial resultsin 2016.Source: Knight Frank/CoStarSource: Knight Frank/City A.MMarch 2017Ald
Occupier Services Retail Banking DEFINITIONS RETAIL BANKING Retail banking, also known as consumer banking, is the provision of services by a bank to individual consumers. Services offered include savings and checking ac
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Future of Retail Banking. Foreword. As the industry adjusts to the effects of Covid-19 and looks towards the future, the retail banking landscape has undergone considerable transformation. Banks must negotiate a multitude of shifting factors —from changing customer behavior to economic
Core-Retail Sales: n/a Number of Stores: 182 Jobs in Retail: 3,345 YUKON Total Retail Sales: 799.8 million Core-Retail Sales: 508.8 million Number of Stores: 186 Jobs in Retail: 3,630 BRITISH COLUMBIA Total Retail Sales: 84.3 billion Core-Retail Sales: 54.0 billion Number of Stores: 20,398
Core-Retail Sales: n/a Number of Stores: 182 Jobs in Retail: 3,345 YUKON Total Retail Sales: 799.8 million Core-Retail Sales: 508.8 million Number of Stores: 186 Jobs in Retail: 3,630 BRITISH COLUMBIA Total Retail Sales: 84.3 billion Core-Retail Sales: 54.0 billion Number of Stores: 20,398
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