Why banks must become gatekeepers or accept commodity status

Global banking revenue is growing, but non-bank challengers will capture 35% of it by 2030.

The traditional bank's role as middleman is under threat, forcing institutions to prove their worth or consciously accept commodity status in domains they cannot win.

With non-bank challengers projected to capture 35% of addressable banking revenue by 2030, Wit Chanyarungrojn, senior manager at Bain & Company, warns that traditional firms must fundamentally justify their existence as beta is free and manufacturers go direct to consumers.

"Data or market access is getting a lot cheaper, so it's no longer something that you can charge a massive premium to just simply providing market access," Chanyarungrojn said during his keynote address at the Asian Banking & Finance and Insurance Asia Summit held in Thailand.

Margins are shrinking across the board, with fee compression expected to reach about 12 basis points by 2030, particularly in passive sectors, which could see drops of as much as 15 basis points.

As global players offer zero total expense ratio ETFs, banks must find a way to "build and prove that we have an alpha advantage that justifies our fees." This is critical because investment performance remains the top reason clients switch advisors, and in this environment, "they are also very easy to switch," Chanyarungrojn said.

As advice goes algorithmic, the cost to scale reduces significantly, offering a path to higher profitability. Chanyarungrojn points out that whilst a digitally enabled model could increase returns by 35% as institutions scale, an AI-powered model can drive those returns as high as 50%.

This shift is exemplified by non-bank challengers like Revolut, which has seen rapid growth of 75% per year over the past decade by attacking the banking services segment by segment.

Simultaneously, asset manufacturers are bypassing banks to go direct to clients through build, buy, and partner strategies. Chanyarungrojn said that traditional asset managers are no longer reliant on banks as a middle manager, citing examples such as Vanguard, which doubled its personal advisory AUM by carving out a $900b advice and wealth management unit, and Fidelity, which doubled its UK direct customer base following its acquisition of LG IM's personal investment arm.

The winners in this modular banking era will be the gatekeepers who can win "share of mind of clients, share of time of customers, and get their share of trust."

Chanyarungrojn said super apps like Alipay, WeChat Pay, and Grab are the new entities capturing these propositions, noting that "it no longer relies on banks for every service offering."

Whilst global banking revenues are projected to grow to between $15t and $17t by 2030, the percentage captured by non-bank challengers is expected to jump from 20% today to 35% in just a few years.

Consequently, institutions must decide which domains they can realistically win in to become a gatekeeper.

"We may not be able to win in every domain, but what are the areas that we can win and become a gatekeeper? And we had other areas that we may not necessarily win, and we may have to become a white-label commodity, so it's important for us to be prepared for that," Chanyarungrojn said.

Amidst the risks of de-globalisation and market stress, Chanyarungrojn noted the long-term opportunity lies in the increasing importance of non-US-dominated financial assets and local consolidation, requiring banks to determine which distribution relationships are truly defensible in a rapidly fragmenting value chain.