It is no secret that many established financial services business models are under immense pressure.
Unfavourable macro environmental factors, increased competition from challengers and technology legacies are all weighing heavily on incumbents.
While some of these developments are presented as problems of the future, the industry is already undergoing a transformation of seismic proportions.
Incumbents are losing market share to challengers, have limited capacity to diversify their revenue streams and are under pressure from monetary policy influences.
Outside the industry: Financial performance under pressure
Low, zero, or negative central bank interest rates make it costly to maintain bloated balance sheets. The potential to affect the financial bottom line is tightly capped by thin margins of balance sheet related activities.
--> This leads to negative effects on return on equity and a highly constrained ability to generate revenue.
Within the industry: Competition on UX and price
Digital-first platforms from tech and challenger brands are entering the finance space with superior customer experiences. Challengers are offering previously chargeable services for free while regulation and comparison platforms have increased transparency around fees and costs.
--> This leads to loss of market share to challengers due to shifts in customer behaviour and expectations.
Within organisations: Internal efficiency bottlenecks
Increasing layers of regulation continue to add headcount and divert resources from client-servicing to compliance-adherence. Legacy-heavy infrastructures and prolonged underinvestment into technology stand in the way of cost-reducing innovation.
--> This leads to operational constraints that limit the capacity to streamline and modernise current business models.
Whilst all this sounds like a significant challenge, there are ways incumbents can take action.
What do banks need to do to survive?
Execute new offerings better
Focus on user outcomes and user experiences instead of products.
Add new offerings faster
Banks need to broaden their revenue base without bloating the balance sheet.
Find a way to stay operationally lean with technology and the business evolving in sync.
Banks are in a unique position with their large customer bases to be able to engage customers with new and exciting tools and services that can take advantage of existing technology and don't take years to build. To delve further into how banks can quickly react to these pressures and unlock new revenue, read our report on The Future of Money Management.