Nadeesha Senaratne elaborates on how banks are transforming themselves

Compiled by Yamini Sequeira

Q: How has the retail banking sector evolved in terms of growth and expansion over the past year?
A: Banking has always been vibrant, and constantly reinvented its business model to respond to changing demographics and customer needs. Technology has redefined the speed and convenience of banking today, and banks have had to reinvent how they service clients.

As customers become ‘global-minded,’ there’s a growing need for borderless banking with retail clients seeking regular and investment banking, both locally and overseas. We’ve seen the traditional model of banking evolve to enable efficient transacting in the context of how customers move money, make payments, save and invest.

Nonfinancial risk management is also critical. With the increase in digital adoption, cybersecurity is capturing more boardroom attention.

As retail banking is becoming more multifaceted – especially with more complex products – it’s important to ensure that products and services have a fair value of exchange, in terms of price and post-sales service.

Q: How has the pandemic impacted the retail banking sector?
A: The banking sector underwent three stages – viz. react, respond and rebuild. Together with the Central Bank of Sri Lanka, banks played a pivotal role in helping customers navigate the financial impact of COVID-19.

They responded immediately with support such as moratoriums on loan payments to help employees in vulnerable sectors.

Customers opted to migrate to digital at lightning speed. Regulators and governments too supported this process, and Sri Lanka’s national QR code was launched to promote contactless payments and e-wallets.

The Central Bank also introduced e-know your customer (KYC) processes to enable users to open accounts from their homes.

The drag in the economy was reflected in domestic banking performance. Slower credit growth, tighter margins, regulatory moratoria and forbearance has had an impact on the sector’s profitability. Non-performing loans (NPLs) and default risk are expected to rise.

Banks also had to recalibrate their risk scorecards and models, as they’re based on historical payment patterns and use. As a result, banks were forced to evaluate and design new metrics to assess their portfolio risks.

Q: What was technology adoption like during the lockdowns?
A: The pandemic acted as a catalyst for the increased adoption of digital behaviour. Customers want the bank in their pocket – and to conduct banking transactions from their homes.

Banks had to forgo wet signatures and resort to paperless modes, as well as review the end-to-end (e2e) digital customer journey, to ensure a seamless experience. With the growth in digital banking, banks had to invest in managing cyber and fraud risk.

Q: What are the main emerging trends in retail banking?
A: Following the emergence of the pandemic, more people are banking through digital channels. But they visit branches for more personal and complex financial tasks.

Branches will become more like service lounges and less about rows of tellers managing daily transactions. Changing the layout of branches in this way will also support any ongoing physical distancing requirements.

Regulatory collaboration on digitalisation will accelerate as it evolves into new areas such as AI and machine learning. Established banks will become more like challenger banks beyond their home markets and partnerships will accelerate.

Digitalisation will also enhance partnerships between banks and platforms, such as online retailers and social platforms, so people can bank where they spend or socialise.

We are also seeing new digital entrants in retail banking markets around the world but it’s predicted that as digital platforms become more scalable, established international banks will begin to challenge them with digitally centric offerings both in and outside their home markets.

Q: So how does Sri Lanka rate in its retail banking offerings, in your opinion?
A: With customers being fully empowered to do their basic banking online, products and services will become commodities.

New generations will have very different attitudes and behaviour when dealing with their finances.

Banks need to spend more time to better understand their core target segments, personalities and changing behaviour. Partnerships with relevant retailers, technology organisations and fintechs will be needed to deliver new customer benefits and differentiation for future growth.

Q: And how has the low-interest regime impacted customer deposits?
A: Research suggests that customers want to save more as a result of the pandemic. Limited options to travel and indulge have forced them to accumulate funds with their banks.

Globally, there are multiple options in diversified investments such as mutual funds, equity or insurance; but in Sri Lanka, such opportunities are limited.

There’s been a major shift towards property investments too. On the other hand, lower funding costs and regulated or directed rates on lending have resulted in a low borrowings record. The expectation is to increase consumption and retail spending to support GDP.

The interviewee is the Head of Wealth and Personal Banking of HSBC Sri Lanka