Technology

Many face the possibility of having to adapt their business models to the reality of a pandemic-centred economy.

One of the more recent examples is Monzo, which recently cast doubt on its ability to continue operating due to its dip in revenue. Whether or not this is actually due to the pandemic or other systematic issues within the company is open to debate.

However, the fact remains that consumer behaviour has shifted towards buying online and having deliveries at home, rather than making impulsive and small-scale purchases outside their home. This has created a drop in revenue for financial institutions that rely on customers actively making payments.

To add to the revenue bleeding that fintechs have been experiencing in the past few months, the BoE’s decision to drop interest rates and New Zealand’s decision to drop interchange fees both have the potential to hurt these institutions.

Although banks are not obligated to pass the interchange fee reduction down through small businesses to consumers, this could disproportionately affect challenger banks as they are building their customer base on highly competitive and easy-to-use services.

Therefore, challenger banks are facing a conundrum. More people are opening digital bank accounts with them, but their revenue is dropping due to the pandemic. One solution to stay on the path to profitability would be to make the subscription model, i.e. Revolut Premium, more attractive to the average user.

As spending is down for the average consumer, this impacts revenue for banks. With lockdowns and restrictions not going away anytime soon and the prospect of an impending recession, the industry will be affected by losses in income for the foreseeable future.

Either way, financial institutions will need to understand that the revenue model needs to mirror a consumer who buys more online and in bulk, rather than smaller purchases made more often.