2018 Banking Outlook Accelerating the transformationBrochure / report title goes here | Section title goes here 1ContentsPlaying the long game 1Customer centricity 3Regulatory recalibration 4Technology management 5Mitigating cyber risk 6Fintechs and big techs 6Reimagining the workforce 7Playing short to aim long 9Retail banking: Transitioning to a mobile-centric 9 and digitally anchored institutionCorporate banking: Prioritizing customer 13 experience, technology, and targeting marketsCapital markets: Leading technology adoption 15 for competitive differentiationPayments: Making the right strategic choices 17Wealth management: Robo platforms 18 expanding beyond investment adviceEndnotes 20Contacts 222018 Banking Outlook: Accelerating the transformation 1For banks globally, 2018 could be a pivotal year in accelerating the transformation into more strategically focused, technologically modern, and operationally agile institutions, so that they may remain dominant in a rapidly evolving ecosystem. This metamorphosis is far from easy as most banks grapple with multiple challenges: complex and diverging regulations, legacy systems, disruptive models and technologies, new competitors, and, last but not least, an often restive customer base with ever- higher expectations.In this outlook we explore the challenges most banks face in balancing the need to restructure their foundations for the long-term with finding near-term growth. We do so by identifying six macro themes that should be critical for long-term growth: 1) Customer centricity, 2) Regulatory recalibration, 3) Technology management, 4) Mitigating cyber risk, 5) Fintechs and big techs, and 6) Reimagining the workforce. Then we drill down into five business segments to address how these long game themes may begin to play out in the next 12 to 18 months (see figure 1).Playing the long gameFigure 1: Six macro themes and five banking businessesSource: Deloitte Center for Financial ServicesCustomer centricityCapital marketsWealth managementRetail bankingCorporate bankingPaymentsRegulatory recalibrationTechnology managementFintechs and big techsReimagining the workforceMitigating cyber risk2018 Banking Outlook: Accelerating the transformation 2But first, some background on the global economy: Real GDP growth should stay healthy across most major markets (see figure 2), giving most lines of business some room for topline expansion. Also, the continued tightening of labor markets in the United States and more recently in the European Union,1 should fuel income gains and credit expansion for retail banks in the near term. This favorable situation could also lead to monetary tightening, as the European Central Bank (ECB) may gradually reduce its quantitative easing program, and raise interest rates, as the Fed has done.2 Meanwhile, real fixed-business investments and corporate profits may also rise, albeit at low rates. And corporate tax reform, as currently proposed in the United States, could mean repatriation of US corporate profits leading to a surge in business investments. On the flip side though, large unfunded tax cuts could fuel concerns in bond markets about the long-run sustainability of US budget deficits. Finally, backlash against globalization and foreign trade3 does not seem to have manifested in damage to cross- border flows.In the end, banks have to contend not only with running the bank, but also transforming the bank to grow in a sustainable manner. Banks will likely have no choice but to balance these goals against the exigencies of the day. And those that are able to achieve this balance could be amply rewarded.Figure 2: Real GDP growth and interest ratesSource: Deloitte United States Economic Forecast 3Q 20170%2%4%6%201120132015201720192021Financial rates (%)Federal funds rateYield on 10-year Treasury notesForecast-2%0%2%4%6%8%10%201120132015201720192021Real GDP growth global (%) EUEmerging EuropeEmerging AsiaLatAmMENAJapanForecast0%1%2%3%201120132015201720192021Real GDP growth United States (%) ForecastSource: International Monetary Fund, October 20172018 Banking Outlook: Accelerating the transformation 3Customer centricityLong-term sustainable growth in the banking industry seems only possible with a radical departure from a sales- and product-obsessed mindset to one of genuine customer centricity, and further rationalization of strategies to target the right markets, customer segments, and solutions. Although banking has undoubtedly improved in many ways in the last couple of decades, most organizations have not gone through the customer-centric transformation that other industries have undergone. With widespread digital disruption, banks may even risk losing control over customer experience. Of course many banks, global and local, large and small, have changed their market and customer strategies since the financial crisis. Many of these decisions may have been forced