For decades, banks have fulfilled two core functions:
- Financial Intermediation: collecting deposits and channeling them into loans and investments.
- Payment Facilitation: enabling the smooth transfer of money between individuals and institutions.
However, these traditional roles are becoming increasingly commoditized. The digitalization of money and banking services has stripped away many of the distinguishing features banks once relied on – such as in-person service and branch networks. Meanwhile,
third-party providers and Banking-as-a-Service (BaaS) platforms now offer modular financial services that any institution can adopt, further eroding differentiation.
The new generation of customers – more digital-savvy and less loyal – readily switch to providers offering better rates or superior technology. As a result:
- Competition has intensified, shrinking profit margins (e.g. reduced fees on international payments) and triggering aggressive price-based campaigns (such as high-yield savings accounts).
- Banks increasingly differentiate through adjacent offerings like personal finance management (PFM) tools, lifestyle services (mobility, telecom, shopping), and loyalty schemes.
- A new wave of bank consolidation may be approaching, as smaller players struggle to compete. See my blog “Is a new bank consolidation wave inevitable?” (https://bankloch.blogspot.com/2021/03/is-new-bank-consolidation-wave.html).
- High-margin products are losing traction, e.g. younger customers favoring low-cost ETFs over traditional in-house funds often promoted by branch advisors.
Yet, despite innovation, many fundamental financial needs remain unmet. Retail and corporate customers still face complex and opaque financial challenges. Key areas where banks can offer real value include:
FINANCIAL RISK MANAGEMENT
Customers continue to face difficulty in assessing and mitigating financial risks:
- Market Risk: Most investors receive little guidance on portfolio diversification or risk exposure across currencies, sectors, or regions. Few banks help optimize portfolios using negatively correlated assets or basic hedging techniques
like covered calls, puts, limit/stop-loss orders, or staggered purchases to reduce timing risk. - Banking Risk: Recent failures such as Silicon Valley Bank and Credit Suisse have underscored the importance of managing institutional risk. Services that help customers avoid exceeding deposit guarantees could be valuable. Check out my
blog “In the Blink of an Eye: How the Digital Age Intensifies the Risk of Bank Runs” (https://bankloch.blogspot.com/2023/06/in-blink-of-eye-how-digital-age.html). - Fraud Risk: In 2024, 93% of UK companies experienced vendor fraud and fraud has become the most common crime against individuals in England and Wales. Despite progress in authentication, fraud detection, new innovations liked Verification
of Payee and inter-bank data sharing, these measures have yet to curb the threat. Other innovative techniques will be needed, cfr. my blog “The Missing Link in Fraud Prevention: Real-Time Customer Dialogue” (https://bankloch.blogspot.com/2025/06/the-missing-link-in-fraud-prevention.html). - Counterparty Risk: Individuals and SMEs still transact with counterparties they know little about. While large firms conduct due diligence, smaller players lack the resources. Banks could play a valuable role here by scoring counterparties
on liquidity, solvency, and trustworthiness. A tool like the CPRA tool from Capilever could help with that.
TAX OPTIMIZED INVESTMENT AND LIABILITY PLANNING
Tax efficiency remains largely overlooked. Few banks offer personalized guidance on optimizing financial products and structures to reduce tax burdens. Addressing this gap could bring major value to high-net-worth individuals and SMEs alike.
SMARTER PRODUCT MATCHING
Selecting the right investment or credit product requires aligning various factors: investment horizon, risk appetite, liquidity needs, tax profile, family situation, and macroeconomic forecasts. Yet comparison tools are still overly simplistic.
Take mortgages, for instance. A proper comparison should include duration, interest structure (fixed vs. variable, caps, revision schedule), related insurances (fire, theft, mortgage), flexibility clauses (early repayment, loan extension), and associated fees.
Tools like Capilever’s FINE and CPRA offer a smarter approach.
PROACTIVE LIQUIDITY MANAGEMENT
Liquidity management remains a major challenge for both individuals and businesses. Balancing long-term investments with short-term cash needs is complex:
- Some customers leave too much idle cash, missing out on returns.
- Others overcommit funds and face liquidity shortfalls, forcing costly overdrafts or poorly timed asset sales.
- SMEs face delayed payments and working capital mismatches.
Banks could provide “liquidity management as a service,” dynamically reallocating funds across accounts, managing reserves, and advising on credit usage. They could simplify decision-making around saving, investing, and credit – without requiring constant
customer input.
See also my blogs
Banks that go beyond commoditized services and address these deeper financial needs can differentiate on quality rather than price. Customers are willing to pay more for intelligent services that reduce stress, save time, and create tangible financial benefits.
The future of banking lies not just in facilitating transactions – but in enabling better financial decisions.
For more insights, visit my blog at
https://bankloch.blogspot.com
