Research reveals retail banking revenue could fall by 20%

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Global consultancy partnership Kearney has revealed the potentially significant impact of COVID-19 on revenue for retail banks. 

According to the group’s research, revenue for retail banks will fall by an average of 20% over the course of 2020. The initial findings also suggest that 1 in 8 retail banks will face losses this year, and that profitability per customer is projected to reduce by approximately 60%.

Simon Kent, Partner and Global Head of Financial Services at Kearney, commented: “There’s no doubt that the current crisis is having a significant impact on retail banks, who are having to weather enormous and unprecedented changes. 

“Repayment holidays on credit cards and loans and offers of interest-free overdrafts are vital for consumers, but they do mean that banks are vulnerable as their income levels drop while operating costs remain largely unchanged.

“Looking ahead, those that will survive will be those that have diversified with more digital services. Customer trust is the real test – banks that actively help their customers combat the crisis will be rewarded with increased loyalty, whilst those who don’t go the extra mile will inevitably suffer the most.”

The research affirmed that while certain consumer areas such as food shopping, streaming services and online retail are thriving, customers have dramatically scaled back their spending given the current pandemic.

This is especially the case on the lending side, according to Kearney, as loan repayment holidays, extended credit lines and interest-free overdrafts significantly contribute to an average 20% drop in revenue. This has added to an already squeezed environment of low base rates, a decrease in economic activity and reduced revenue from assets. 

However, according to the firm this figure is just a base scenario, based on a partial recovery towards the end of the year, and that it’s possible revenues could drop as much as 35-40%.

Kearney’s European Retail Banking Radar is an annual analysis of the pan-European banking market, tracking 92 retail banks in 22 European markets, comprised of 50 banks in Western Europe and 42 banks in Eastern Europe. The first instalment of the 2020 edition looks specifically at the outlook for retail banks over the coming year, modelling how COVID-19 will impact retail banking profits.