By Daniel Lanyon on Friday 19 November 2021
Research by Accenture looking at the business of models of over 300 traditional and digital banks in 11 countries across North America, Europe, Asia-Pacific and Latin America found large global banks need to rethink their business models.
Banks have an opportunity to earn $518bn more per year in revenues by 2025 by copying the business models of digital-only challengers, according to a new report from Accenture.
The models of nearly 100 leading traditional banks and over 200 digital-only players in 11 countries across North America, Europe, Asia-Pacific, and Latin America were analysed by Accenture which found that pressure of revenues is building in the banking system.
What started as somewhat small revenues being earned by digital-only banking players is now building into a steady and quickly growing wall of cash from the new wave of competitors.
The report notes that with a total rethinking of large banks business models and embracing strategies similar to digital-only banking and financial services new entrants, traditional banks could boost revenues by nearly 4 per cent.
“On the surface, the banking industry appears healthy, with big banks posting robust revenues and profits,” said Michael Abbott, a senior managing director at Accenture and leader of its banking practice.
A closer look, however, suggests that the combined effect of more than a decade of low-interest rates, fee compression from increased competition, and undifferentiated product offerings is slowly eroding banks’ share of gross domestic product, Abbott says.
“In many markets, banking and payments revenues are flowing from incumbents to new entrants. To re-ignite growth, traditional banks need to reimagine how they create and deliver compelling products that focus on customers’ intentions. That will require rethinking their vertically integrated business models.”
Purely moving to the digital sphere is no longer a differentiator though, says Dilnisin Bayel, a managing director in Accenture’s Strategy & Consulting group in the U.K.
“To capture growth, traditional banks need to go beyond becoming the best digital versions of themselves and become adept at operating multiple business models simultaneously. This will require that they shift their perspective to consider adaptive models that put product innovation, embedded distribution, purpose, and sustainability at the forefront. Banks can choose to continue to innovate at their current pace or take a fast-follower or leader approach to business model transformation – but they can’t afford to remain stagnant.”
The full report can be found here.