The boom in retail banking and the intensive competition to boost the client base led to banks building huge loan portfolios. In many countries, banks have been very liberal in disbursement of consumer credit cards, auto loans, educational loans, and SME loans. Quite often, banks have been guilty of poor scrutiny and diligence in their rush to grow the loan book. Such poor risk management inevitably leads to a rise in loan repayment defaults and thus write-offs of Non-Performing Assets (NPA). This puts the bank at risk that needs mitigation by raising additional capital and cutting costs. It also leads to increased regulatory scrutiny.
Banks have often adopted policies that leads to loss of faith among consumers. Many a time, there is inadequate training of employees and third parties or external agents who sell the bank’s products to prospective customers. Some banks even resort to strong arms tactics while dealing with defaulting customers. If a bank does not operate in an ethical and transparent manner, it may hamper the bank’s brand image and lead to a loss of faith in its corporate integrity.
One of the biggest current challenges in retail banking is the security of customer data and protection of privacy. With the spike in growth of digital channels, social media outreach and online interactions, protecting customer data is of utmost importance. Banks also have a duty to not share personal data from customer documents with external organizations such as market research organizations and other advertisers. Any incidents of data theft or compromise may lead to immediate loss of face on social media and even invite penalties or regulatory action.
The enormous growth of IT technology and the all-round usage of latest tools means that banks are now heavily dependent on the quality and effectiveness of their IT division. Retail banks are not considered to be the biggest custodians of customer data and biggest users of digital technology. Any bank must keep pace with the latest technology and ensure that the customer experience is up to the expectations of a digitally savvy customer and regulators.