Yet this market is in a state of flux: Incumbents face significant challenges from eroding revenues and stubborn legacy cost bases; technological advances are opening new possibilities for new banks (or greenfield propositions within old ones) to enter with slicker propositions and much lower costs; and regulatory changes are enabling new ways to facilitate banking without actually being a bank.
It is hard to predict exactly how these market forces will play out, but we have drilled into the economics of current accounts to shine a light on the factors that will determine who succeeds and who fails, and to highlight priorities for decision makers.
Technological impact on retail transactional products and services
In our State of Financial Services Industry 2018 report: The Customer Value Gap: Recalculating Route we wrote about the impact that technology has had on different areas of people’s lives. We underlined the importance of the proposition creating value for customers – which in turn allows firms to better acquire and retain customers – and hypothesized that the winners will be those who can close the customer value gap and reap the rewards.
In this report, we use an economic lens to explore how this dynamic is playing out in transactional products and services aimed at the retail customer, with a focus on what makes or loses money.
We look at the environmental and competitive forces, which are eroding the status of the current account provider as the historic lynchpin of the banking connection with the customer and examine the product and relationship economics for different player categories. We conclude with an examination of the implications for different categories of players and a series of recommendations for each type.
We have focused on three categories of player as defined below for the purposes of this paper. However, many of the same points are applicable to a broader range of existing and potential future marketplace participants. Firms from the retail, telco, or technology sectors may choose to back into one of these categories through direct entry or acquisition, bringing with them trusted brands, large and engaged user bases, and synergies with their core businesses.
We also foresee a blurring of the lines, as players seek to raise the bar on customer experience and interaction, generate revenue streams beyond their core offering, and expand their role in the value chain.
For more information about the economics of current accounts download the full version of the report.