While retail banking is perhaps the best insulated against economic cycles, banking is still dependent on the broad direction of the economy

As banking becomes more of an ecosystem business, banks no longer control processes end-to-end and must operate in a broader technological ecosystem

The accumulation of layers of technologies from mainframe computers to e-banking to internet banking means that many banks operate legacy technology systems that cannot easily plug in to the new ecosystem of cloud computing and application programming interfaces

  1. Prone to socio- economic trends and factors:  

Retail banking is dependent on economic factors like unemployment, inflation and other indicators.  Managing a large number of customers as they change their behaviour in response to economic trends is a huge challenge in retail banking. Retail banking is most vulnerable to movements in economic variables.

  • Marketing and Selling costs:

Retail banking needs powerful internal and external marketing strategies to be implemented by the bank. Top-level management needs to introduce products to their employees in an effective way, so that the staff has in-depth knowledge of the products they offer, otherwise, the product will fail, however efficient it is. Banks also spend a lot of time and effort in marketing their products to the general public to create awareness and generate demand. All this means a heavy continuous investment in marketing, branding, advertising and selling. Unlike institutional and corporate banking, which rely on building relationships with large institutions, retail banking requires reaching out to a large mass of diverse customers. The growth of the digital world has created another channel for investment.

  • Changes in Technology:  

Retail banking’s future depends on the adoption of the latest technology.  The different IT solutions used by banks such as e-banking, telephone banking, ATM, all seek to leverage the optimum dispersal of banks’ products and services. But this has landed the industry at the crossroads. If banks are unable to embrace new technology including APIs, their ability to grow rapidly is hindered. Technological development also needs a lot of capital investment and IT resources. There is also the risk of failure in technology – leading to embarrassment with customers and even loss of customers.

  • Requires highly specialised and skilled resources:  

Retail banking demands highly skilled experts in banking products and IT. It also requires unique selling skills and now digital marketing skills that are in high demand. Lack of specialised resources may impede the growth of a retail bank.

  • Distributed ecosystem requires high level of coordination: 

Retail banking can be a success only if all the different departments work in cohesion. If there is a lack of coordination between different bank departments then the whole system can collapse, regardless of how useful the product or service may be. Assume that the front office succeeds in attracting the customers, but the back office is unable to deliver the product or service as per expectations, then the bank may lose business. Retail banking requires seamless delivery of top class services through round the clock coordination between operations, IT, Sales, and all channels.