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Banks facing 'unprecedented' competitive pressures

Oct 17
 
Tags: Accenture
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Banks facing 'unprecedented' competitive pressures

Many traditional banks could struggle to maintain revenue growth in the face of "unprecedented" competitive pressure from digital-only providers, fintechs and big tech brands, according to Accenture.

A new report from the firm shows how these challengers to established financial institutions have been "quietly gaining customers", while incumbents are failing to make the necessary investments in a digital-driven future.

A difficult balance

After analysing more than 20,000 banking and payments institutions across seven markets, Accenture found that the number of active businesses fell by nearly 20 per cent between 2005 and 2017, from 24,000 to fewer than 19,300.

However, 17 per cent of firms currently operating were classed as new entrants, meaning they entered the market after 2005.

The report notes that while most traditional banks have been unfazed by this wave of new competitors, there is a "real and growing" threat to revenue growth potential.

Alan McIntrye, senior managing director at Accenture and head of the group's global banking practice, said the majority of established institutions face the challenge of balancing investment in digital capabilities with the legacy systems required to protect customer data.

"Banks can't simply digitally enable their business as usual and expect to be successful," he added.

"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."

Regional trends

In the UK, nearly two-thirds (63 per cent) of current players in the financial services industry are new entrants, largely thanks to regulatory changes designed to boost competition and challenge the dominance of big banks.

Accenture called this an "eye-popping" figure, particularly compared to the global average of 17 per cent.

New entrants have acquired 14 per cent of total banking revenues, with 12 per cent going to non-bank payment institutions.

Across the whole of Europe (including the UK), new entrants account for a fifth (20 per cent) of all banking and payment businesses. These firms have captured nearly seven per cent of total banking revenue - or one third (33 per cent) since 2005.

Recent trends in the US have seen the number of financial institutions decrease by nearly a quarter, largely due to the financial crisis and resulting challenges in gaining a banking licence.

Nearly one in five current financial service businesses in the US (19 per cent) are classed as new entrants.

Summing up the findings, Julian Skan, a senior managing director at Accenture and global banking lead at Accenture Strategy, said the banking industry is currently witnessing a higher level of "competitive intensity and disruption" than ever before.

With a potential power shift looming, he warned that incumbent businesses "can no longer rest on their laurels".

Mr McIntyre said: "The future belongs to banks that can build new sources of growth, including finding opportunities beyond traditional financial services. They can't afford to blindly follow the path they originally set out at the beginning of their digital journey."

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Image: iStock/Rawpixel

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