What do consumers want from next generation banking, and how will challenger and established banks provide it?

Abstract

This paper outlines the origin of the retail banking model and its evolution, suggesting a disruptive change to suit modern consumers. It observes the significant barriers faced by traditional banks in responding to the opportunity for creative innovation to their business model. Bank account profitability remains dependent on hidden fees, penalty charges and consumer mistakes, too often penalising those least able to afford the consequences. The paper highlights legacy technology, operational footprint and attitudinal resistance as being insurmountable barriers to reinvention for the scale operators, but also questions whether the challengers of the past decade have ever really addressed the vulnerability of the big banks other than from a pricing and efficiency improvement perspective. It notes the chance for greater attention to business model change by the new digital challengers, warning that sticking to the current model of retail banking within a digital wrapper is unlikely to be a winning strategy. In particular, it observes the ways to look to change the business model by use of flexible, servicesbased FinTech platforms to provide both a better, more personalised customer experience and a new and fairer way of charging for core current account services. The paper suggests a future where the major banks become wholesale focused, leaving consumer interface to more attuned and collaborative new challengers. Readers can expect to get a deeper understanding of the reasons the retail banking industry has the commercial model that exists today, and what can be done to deliver a more imaginative, fairer and more transparent model, fit for the 21st Century.