At the Interface: Basel III, Client Delight + Gen Y

The majority of MBA students belong to the Generation called Gen Y, or the Millennials, the Net Generation, the First Digitals. This generation, generally defined as those born between 1976 and 1995, comprises the future leadership, management and workforce of corporations and organizations worldwide. Many young executives attend MBA programs with the hope and plan of pursuing a post-MBA career in finance – particularly, banking. Yet banks, indeed their underlying business models, unless going into a stage of paradigm paralysis, will undergo a paradigm shift in the next 10 years. Within that shift, banks need to delight clients in an unprecedented way. How will MBA graduates and Gen Y as a whole deal be affected – indeed affect – these changes?

Basel III will have a huge negative impact on banks. Tier 1 capital requirements will increase. Short-term liquidity requirements will increase. And there will be a gap in long-term funding. Closing these gaps will, logically, have a substantial impact on profitability. Additionally affecting the bottom line is of course the implementation of the the new systems: strategic planning, capital and risk strategy just to name a couple.  By McKinsey’s recent estimates, ROE will reduce on average by 4 % for European banks and 3% for US banks – a lot.  And what about the effects on personnel, on hiring, on growth and therefore on the level of service because of hiring freezes, threats of layoffs, and too many clients per client advisor.

On the flip side of this pressure is the ever increasing pressure for banks to do a better job with customer service. Call it client focus. Call it client centricity. I personally like to call it client delight – which is far above mere client satisfaction. Whatever they call it, it has to improve. Many of the major consulting firms regularly publish studies on the current and future status of banking. You know them. Deloitte. KPMG. McKinsey. And so forth. All talk about things like “client advisory excellence” and client delight and the fact that clients are global, savvy, sophisticated – and educated and increasingly demanding. The most recent KPMG / UNISG study shows, for example, that only 53% of the banks surveyed believe current client advice is sufficient to meet client’s changing needs in terms of rigorous assessment of financial profile, investment objectives, risk, and insightful investment ideas. 53 percent – barely the majority. Probably the scariest part about clients and the changing laws is the increase of transparency required by both sides, the law and by clients. Clients now can and should know what the bank is making off their money – and this naturally leads to some hefty discussions, and sometimes to clients changing banks.

Finally, there is Gen Y. Gen Y, the Millenials, the generation of new workforce that has been highly and diversly dicussed, watched, researched like no other. How will this generation, indeed our MBA graduates, deal with the changes facing the banks as employees? As clients? Will they find banking as interesting a career industry as previous generations with all of the expected forthcoming changes regarding both the banks themselves and their clients? Is there a fit? Is there a mismatch? How are banks adapting and planning now for the personnel (Gen Y in particular) and possible cultural changes going on right now and even more so in the next ten years? Whose responsibility is it? HR? The line? Strategy makers? Gen Yers themselves? What is the role of business schools such as the University of St. Gallen in these processes?

There is a lot of room for discusssion on all three areas and how they interface: new banking models resulting out of Basel III, what clients need today – and more importantly – tomorrow, and how the workforce will adapt to these changes.

What do you think?

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4 thoughts on “At the Interface: Basel III, Client Delight + Gen Y

  1. I don’t believe that Basel III requirements will have such an impact on the banking system. I think the overall challenge is how to surpass the gap between the bank products offer and the real needs of their clients. the major problem I see is that the banks are generally leveragingon their clients ”wants/desires” rather than their clients ”needs”. and this is just a way to next bubble whatever this might be… it’s not a matter of choice it’s more a matter of who does it first. the competition for revenues will not create enough room for educating the clients according to their real financial needs, bur rather to their next short time gain… and future long term loss…

    • For me, Basel III brings into question whether traditional banks should be drivers of the economy or, rather, stewards of the economy. The last economic boom taught us that innovation in finance does not necessarily create sustainable growth. In the end, Basel III will accomplish the goal of fortefying the system, albeit at the cost of sub-25% ROIs. Confidence will be restored. The drivers of the economy, in terms of finance, operational efficiency, and accountability, will be the private equity and venture capital firms. And I am speaking globally- from shanghai to medellin and all cities in between.

      =0D=0AMerry Christmas, Happy holidays, and may you all have a peaceful new year.=0D=0ARey C Farooq, class of 2010

  2. For me, Basel III brings into question whether banks should be DRIVERS OF, or, rather, STEWARDS OF the global economy. The last economic boom taught us that innovation in finance does not necessarily create sustainable growth. In the end, Basel III will accomplish the goal of fortifying the system, albeit at the cost of sub-25% ROEs (a target set from 2005-2007 in the investment bank I worked for). Having said that, CONFIDENCE—the lifeblood of the banking industry– will be restored. Further, the drivers of the economy, in terms of finance, operational efficiency, and accountability, will be the private equity and venture capital firms. And I am speaking globally: from Shanghai to Medellin and all of the cities in between. This, however, is a separate topic.

    How will Basel III affect my generation (specifically, those who are interested in banking)? Well, it might steer a lot of us away from a traditional “brokerage” model of banking into a more “advisory” model, with an array of new technologies, products, and networking tools to help deliver the highest ‘client delight’ possible. This will come in the form of smart wireless devices, social/professional network platforms, cloud computing, et al. We will be able to give real-time updates on portfolios, underlying investments/portfolio companies, interest rates, competitor analysis, etcetera, via our iPads or Galaxy S’s or what-have-you’s… And banks will continue to make large investments into cyber security/infrastructure, while hiring the talent that knows how to use and manage all this data & equipment. Bankers will have new skill-sets. The next ten years are going to be very interesting times for banking and finance. Globalization is now being led by Generation Y.

    Merry Christmas, Happy Holidays, and may you all have a peaceful New Year.

    • Globalization is now being led by Generation Y indeed, Rey ! The generational differences are and will continue to clash, but the next generation of millennials will persist… until the following generation in turn does the same.

      ROEs of sub-25… well… i see some hovering about 15-20 rather… 😉

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