In a zero-interest rate economy, money no longer makes money. The UK’s ‘free if in credit’ model is now at risk. This has led to questions as to whether this is the end of UK banking as we know it, but it doesn’t have to be.

Other industries have been through a similar phase of disruption. A decade ago, businesses across the media industry were going through similar existential crises. Print and advertising revenues were in decline, digital platforms were challenging traditional outlets and customers were becoming increasingly accustomed to accessing content for free.

Whilst the subsequent period of disruption was not without its casualties, there were also great success stories and lessons that retail banking can learn. Here are just three of them:

The customer value exchange can be reinvented

Faced with a reliance on dwindling advertising revenues. The New York Times chose to double down and invest in what it did best – quality original journalism. It hired top writing talent to deliver its core product and then charged its readers to access it. And 6.5 million of them did.

The organisation was able to move from a complex business model of monetising customer engagement for advertisers. To a more straightforward one – giving customers something they were willing to pay for.

Consumers in the UK might be used to getting their basic banking services for free, but that doesn’t necessarily mean they wouldn’t pay for a differentiated offering. Providing value-added paid-for services could allow retail banks to move from being ‘the place I keep my money’ to ‘a partner in my financial life’.

Working in partnership can allow you to diversify more quickly

In the early 2010s, Time Out had a great reputation for local knowledge but needed to generate new revenue streams. They chose to leverage their position and expertise by working with select local restaurants to launch Time Out Markets. These branded food markets started in Lisbon but are now all over the world. In 2019, they drove over a third of the company’s revenue.

To achieve success, Time Out didn’t go it alone and build complex new capabilities. They utilised what already existed – leading the development of the proposition but working with others to deliver it.

Partnerships aren’t new to retail banking. The partnership between TSB and investment platform Wealthify is a great example of two adjacent and complementary businesses coming together.  However, there’s still a vast untapped opportunity for retail banks to differentiate themselves by working creatively with their wider ecosystem. Such partnerships would allow them to take their well-known consumer brands into new areas and meet the needs of their customers.

Data is king

There’s few bigger success stories on harnessing customer data than Netflix. They know what you watch, when and for how long. Their recommendation algorithm can tell you where to go next, powered by data on you and its other 125 million customers, segmented into 2000 “taste clusters”. Netflix’s data allows it to serve a hugely diverse customer base in a laser-targeted way.

There’s no doubt that compared to this, retail banks are starting with a disadvantage – most aren’t truly ‘digital’ businesses operating on a single platform. Direct customer interactions happen in multiple places (e.g. branches, telephone and online). ‘Usage’ can take multiple forms (e.g. logging into your online banking, making payments, taking out cash). Bringing just data together isn’t simple, and that’s before even beginning to grapple with customers’ relevant interactions on third-party platforms. That said, whilst the challenge is significant, so is the opportunity.

Customers’ interactions with their banks are highly contextualised; decisions on financial products are typically linked to a much broader set of life circumstances. Increasingly sophisticated Martech platforms offered by the likes of Pega, Thunderhead, and Adobe can allow banks to use data from outside their owned channels. This allows banks to build a clearer, closer-to-real-time picture of their customers (beginning with their online interactions). If banks can use this data effectively, they can start to offer their products in a much smarter and more targeted way. Products could have greater relevance to their customers and provide significant returns for them.

Retail banking moving forward

The current UK banking model is under threat, but retail banks can learn from other industries and come out stronger. By reinventing the customer value exchange, leveraging partnerships and gathering data, retail banks can offer products with greater relevance to their customers and improved returns for themselves.

Want to learn more? Read our report on The New Economics of Banking