Bank fees are getting squeezed in the face of regulation and new competitors, putting 5% of revenues at risk, report finds

Incumbent banks are at risk of losing billions of dollars in retail revenues in the next three to five years, as new competitors draw customers with no-fee banking services and regulators in select markets mandate simple banking fee structures to protect consumers, according to a new report from Accenture.

The report, titled “Purpose-Driven Banking: Can Trust Create Win-Win Banking Relationships?,” is based on quantitative analysis of retail banks’ revenue pools across 12 markets in Europe, North America, South America and Asia-Pacific and was complemented by a survey of nearly 15,000 banking customers in those markets.

It found that the revenue that traditional banks generate from overdraft and other fees and from charges for services like cross-border payments and foreign transactions will erode as a result of both competitive and regulatory pressures, resulting in an average revenue loss of 5%.

“Whether in one year or five, the billions in revenues that traditional banks collect annually for basic services and penalties, like overdraft fees, will erode,” said Alan McIntyre, senior managing director and global head of Accenture’s Banking practice. “Banks that proactively cannibalize this diminishing revenue by helping customers manage their money better will earn their trust, which benefits both parties. The economic logic is simple: Better advice leads to better customer decisions, which create more wealth over time — more wealth for banks to help manage.” 

The report notes that banks could use innovative technologies, such as artificial intelligence and predictive analytics, to build personal relationships with their customers and become trusted advisors —capturing 9% incremental revenue growth, on average, by doing so.

For example, to help customers make better financial decisions, banks could provide advice on what payment options will generate the most rewards or how best to finance a large purchase. In fact, more than half (55%) of consumers surveyed said they would be willing to pay a fee for relevant add-on services from their bank.

“Banks in markets experiencing high revenue loss, such as the U.K. and Hong Kong, have an opportunity to reap first-mover advantage and grow net revenues by building trust through day-to-day advice and transparency,” said Julian Skan, senior managing director and European head of Accenture’s Banking practice.

“For most of the countries we analyzed, banks could increase revenue through a trust-based approach that would more than compensate for the revenues under threat. However, in countries like Sweden and France, where customers are more skeptical, banks would have to find additional ways to defend and grow their business, perhaps by becoming intermediaries for non-financial products.”

Accenture’s analysis suggests banks that provide trusted solutions and advice to their customers — and earn status among the most trusted brands — will also boost their reputation and brand image, lower operations risk exposure, and enhance their ability to attract talent.

Methodology
The report, “Purpose-Driven Retail Banking: Can Trust Create Win-Win Banking Relationships?,” is based on a quantitative analysis of retail banking revenue pools “under threat” due to pressure from digital challengers, regulators and improvements in consumers’ financial habits across 12 markets: Australia, Brazil, Canada, France, Germany, Hong Kong S.A.R. of China, Japan, Italy, Sweden, Spain, the U.K. and the U.S. The analysis included potential revenue uplift that banks can expect if they implement initiatives described in the report. The analysis was complemented by a survey of 14,900 banking customers across the 12 identified markets in November and December 2019.