Are banks struggling with competitive pressures in the digital age?
CUSTOMERS want digital products and services, and the convenience that it comes with. They’ve made themselves clear and in the financial services industry, it’s up to banks to deliver — or lose business to startups.
And although banks are making visible changes to the customer experience they offer and the technologies they use to deliver that experience, it seems as though they’re struggling to convince customers.
New entrants to the banking market — including challenger banks, non-bank payments institutions, and big tech companies (such as Alibaba) — are amassing up to one-third of new revenue, which is challenging the competitiveness of traditional banks, according to new research from Accenture.
The consulting giant’s study found that the number of banking and payments institutions decreased by nearly 20 percent over a 12-year period, from 24,000 in 2005 to less than 19,300 in 2017.
However, nearly one in six (17 percent) current institutions are what Accenture considers new entrants — companies entering the market after 2005.
While few of these new players have raised alarm bells among traditional banks, the threat of reduced future revenue growth opportunities is real and growing.
“Most banks are struggling to find the right mix of investments in traditional and digital capabilities as they balance meeting the needs of digital customers with maintaining legacy systems that protect customer data,” said Accenture Senior MD Alan McIntyre.
Banks can’t simply digitally enable their business as usual and expect to be successful. So far, the conservative approach to digital investment has hindered banks’ ability to build new sources of growth, which is crucial to escaping the tightening squeeze of competition from digital attackers and deteriorating returns,” explained McIntyre.
However, despite the threats, it seems as though many incumbent banks continue to dismiss the threat of new entrants. According to Accenture, traditional banks feel that:
- New entrants are not creating new innovations, but rather dressing up traditional banking products
- Significant revenue is not moving to new entrants, and
- New entrants are not generating profits.
However, the reports analyzed where revenue is shifting to new entrants and identifies examples of true innovation happening around the world that can no longer be dismissed.
Accenture predicts that the shift in revenue to new entrants will continue and will start to have a material impact on incumbent banks’ profits very soon.
If they don’t make serious efforts to ramp up their digital offerings and deliver better experiences to customers, they’re going to soon lose revenues and business.