According to a recent report from global professional services company Accenture, banks could increase annual revenues by almost 4% by embracing innovative business models of digital-only banking and financial services.
The report, “The Future of Banking: It’s time for a change of perspective,” analysed the business 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.
Two common business models were identified: the vertically integrated model, deemed the traditional model; and the non-linear model.
The report found those that unbundle their traditional products and partner with third parties to create and distribute new personalised customer offerings, that is, the non-linear model, can potentially achieve breakout growth and higher market valuations.
Specifically, by layering non-linear business models on top of the traditional vertically integrated model, they could boost their annual growth rates by up to an additional 3.8%, which would result in $518bn in total additional revenues by 2025.
The report also revealed that between 2018 and 2020, digital-only players performed significantly better than traditional banks. Importantly, those that adopted non-linear business models achieved 76% compound annual growth rate (CAGR) in revenue, while those digital players simply emulating traditional, vertically integrated models achieved 44% CAGR.
According to Dilnisin Bayel, a managing director in Accenture’s Strategy & Consulting group in the UK, being digital is no longer a differentiator for a bank.
“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.”
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