Is tech really disrupting the banking industry in Europe?
Customers have made it clear for a while now that they will no longer accept any kind of uncertainty when it comes to the banking and financial services they choose — and they vote with their wallets quite effectively.
Across Europe, there’s a strong demand for digital-first, or rather, mobile-first banking that is transparent, on-demand, and competitively priced.
It’s something that customers in this part of the world believe is their right, and if traditional banks are too lazy to move away from legacy systems to deliver on expectation, there are new digital disruptors who’re happy to win some new business.
In fact, according to a new study by Accenture, new entrants to the banking market, such as challenger banks, non-bank payments institutions, and big tech companies, are amassing up to one-third of new revenue.
This is challenging the competitiveness of traditional banks and raising serious questions about their future.
Accenture analyzed more than 20,000 banking and payments institutions across seven markets to quantify the level of change and disruption in the global banking industry.
The 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.
In the UK, with regulation increasing competition in the financial services industry and reducing the dominance of established banks, 63 percent of players are new entrants.
Compared to other markets and the 17 percent global average, this is a strong deviation — and serves as a wake-up call for the industry.
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New entrants have captured 14 percent of total banking revenues, with the clear majority (12 percent) going to non-bank payments institutions.
While they have only taken around 14 percent of revenues, Accenture believes that they are taking over one-third of new revenue indicating a higher level of disruption in the future.
As a result of these changes, traditional banks are expected to start feeling the heat soon — a significant impact on revenues seems imminent as leading challenger banks surpass the 1 million customer threshold and 15 of the most prominent fintechs in the market gaining full banking licenses.
Overall, in Europe (including the UK), 20 percent of the banking and payments institutions are new entrants and have captured nearly 7 percent of total banking revenue — and one-third (33 percent) of all new revenue since 2005.
However, Accenture’s report found several examples of true innovation happening around the world that can no longer be dismissed — especially in the payments space.
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 traditional banks 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.
25 November 2022
25 November 2022