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?