Bank's services fees face "secular downward" pressure in the long run, which will drive lenders back toward credit transactions whose margins are resilient to competition and new technologies, a senior executive at management consultants Accenture Plc said.
Banks have relied in recent years on sales of insurance, credit/debit cards, asset management and other products as a way to offset narrowing margins on lending-related activities and higher capital requirements. Return on equity in those so-called fee segments can be three or four times bigger than in lending.
But Alan McIntyre, senior managing director for global banking at Accenture's consulting arm, said services such as investment advisory or payment processing are some of the ripest for innovation. Technology helps financial start-ups gain customers at the expense of traditional banks, which face "fee margin compression because of compressive disruption," he said.
Traditional lenders, as a result, will end up relying more on lending spreads, McIntyre told Reuters in an interview, given that "they will not easily undergo compression, due to their complexity in many cases." His remarks underscore how technology could make banking far more personalized and reliant on relationships than many think. Artificial intelligence will be the main channel through which banks will interact with their customers by the end of the decade, McIntyre's group said in a report earlier this year.
McIntyre, in Brazil over the past week to visit customers, said so-called "Big Tech" is wary of entering the territory of banks due to fear of central bank regulations. Digital customer experience is not really enough to steal many customers away from traditional banking relationships, he said, noting that customers are moving on to digital ones at a single-digit pace in many markets.
"The existing threat is Big Tech intermediating bank customers and leaving banks as utilities who provide products but don't manage the customer relationship," McIntyre said. He added that Brazilian banks have a "false sense of security" in their profitability, noting that domestic and global peers alike must think more seriously about efficiency to remain attractive to investors.