Future of banking: Time for a change of perspective

Banks could increase their annual revenues by nearly 4% by embracing innovative business models of digital-only players, says Accenture Report and the banks have an opportunity to reap an additional $518 billion in revenues by 2025 nearly 4% annually, resulting in more than half a trillion dollars in additional revenues by 2025. Many of the leading banks, analyzed in the report, have vertically integrated business models.

The report notes that between 2018 and 2020, digital-only players performed significantly better than traditional banks. But those that adopted non-linear business models achieved 76% compound annual growth rate in revenue, while those digital players simply emulating traditional, vertically integrated models achieved only 44% CAGR. Traditional banks in even the best-performing mature markets grew revenue at an average rate of less than 2% annually – albeit off a much larger base.

A bank typically owned each layer of the value chain and would create, package, and distribute its products, whether the bank was a century-old global titan or a neobank offering a digital alternative to traditional offerings. Its models were monolithic, linear and vertically integrated.

But new waves of digital-only players have unshackled themselves from vertical integration and are fragmenting the banking value chain by choosing which layers they want to play in. They are also unbundling traditional products into micro-products or services and re-bundling their own offerings together with components from other providers to offer better customer propositions.

Many digital-only players are using this non-linear and adaptive business model to attack incumbent banks where they are most exposed. The strategy of each challenger varies, but they are unified in their ability to configure innovative products and propositions quickly and at scale, with lower customer acquisition costs. Large banks are understandably reluctant to discard the vertically integrated business models that still drive their profitability.

Finally, the good news is that taking on non-linear business models is not an all-or-nothing proposition. Going forward, banks should consider playing a range of roles in the value chain.