Banks could boost their revenue by 4 per cent annually by embracing the strategies of digital-only banks and new entrants to financial services, according to research from consultancy Accenture.

This could result in more than half a trillion dollars in additional revenue for banks by 2025.

The report looked at 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.

Accenture’s report identified two of the main business models being used by banks:

• “Vertically integrated”, or traditional, linear business models. For example, those that sell only their own products, those that distribute products from other providers, and those that deliver technology or business processes to others

• “Non-linear”, or adaptive business models. For example, “packagers” that assemble new propositions, adding value beyond just distribution; and firms that embed their propositions into third-party services, such as “buy now, pay later” services embedded into the merchant point-of-sale

The consultancy firm said that many of the leading banks analysed in the report have “vertically integrated” business models.

Accenture claimed that by embracing “Non-linear” business models - that unbundle traditional products and partner with third parties to create and distribute new personalised customer offerings - banks can potentially achieve “breakout growth” and higher market valuations.

The report claimed that between 2018 and 2020, digital-only players performed significantly better than traditional banks, however those that adopted non-linear business models achieved a 76 per cent compound annual growth rate (CAGR) in revenue according to the research.

Those digital players who simply emulated traditional, vertically integrated models achieved only 44 per cent CAGR according to research.

Traditional banks in even the best-performing mature markets grew revenue at an average rate of less than 2 per cent annually – albeit off a much larger starting base in terms of revenues the consultancy noted.

“On the surface, the banking industry appears healthy, with big banks posting robust revenues and profits,” said Michael Abbott, a senior managing director at Accenture. “But a closer look reveals that the combination of low interest rates, fee compression from increased competition, and undifferentiated product offerings is slowly eroding banks’ share of gross domestic product.”

“And in many markets, banking and payments revenues are flowing from incumbents to new entrants. To re-ignite growth, traditional banks need to reimagine how they create and deliver compelling products that focus on customers’ intentions.”

He added: “That will require rethinking their vertically integrated business models.”

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