Rising customer expectations, changing interest rates, and growing competition from neobanks are reshaping the financial services sector. The big question is: are you ready to respond?
Banks operate in different market environments, have different business models, and serve diverse client segments. There is no "one-size-fits-all" action plan. At Simon-Kucher we are here to offer guidance tailored to your strategic priorities in 2025.
What’s your growth priority in 2025?
- Winning new customers
- Increase interest margins
- Generate more fee income
- Better understand and engage with customers
- Manage regulatory risks
- Leverage efficiencies from AI and advanced technology
Winning new customers
Winning new customers is a crucial path to growth, offering banks the opportunity to expand their market share and diversify their revenue streams. However, acquiring new customers has been increasingly challenging, as it requires addressing evolving expectations and competing in a crowded marketplace. Winning new customers requires banks to adapt to shifting expectations and explore untapped opportunities.
For example, to attract mobile-first customers, banks should prioritize simplicity in their offerings, ensuring products are intuitive and easy to understand. Targeting specific niches, such as underserved demographics or emerging markets, can provide a competitive edge. By developing digital-first solutions tailored to these segments, it’s possible to align the bank’s services with customer preferences while setting the stage for long-term growth.
Read our article: What can traditional banks learn from neobanks?
Increase interest margins
After more than a decade of near-zero rates, we’re now in a period of sharp fluctuations. After massive increases by all central banks in their effort to fight inflation, rates have started to come down again in 2024. While this creates opportunities, it also brings risks. Banks must refine their interest rate strategies and adapt to an environment of potential rate volatility.
Many institutions have seen their capabilities in managing interest margins erode over years of low or no rates. To address the new market realities, banks must prioritize rebuilding their rate management expertise and leveraging advanced analytics. By understanding how rate changes impact both customers’ flow of funds and as a consequence the banks’ deposit and lending volumes and margins, decisions become more informed and optimized for growth and profitability. Proactive management of these dynamics not only secures financial stability but also positions banks to capitalize on growth opportunities in uncertain times.
Discover more: Retail Lending: Unlocking growth for retail banking
Generate more fee income
As interest margins face continued pressure, generating more fee income will again become an essential strategy for banks to maintain profitability and drive growth in 2025. This requires designing products and services that provide value beyond pure financial commodities alone. The key to success is driving customer engagement and helping them to understand and manage their financial situation holistically. By integrating digital and hybrid forms of advice banks can significantly increase customer engagement and loyalty and incentivize customer relationships, thus generating additional interest and non-interest income. Value-added services tailored to specific customer needs, such as financial planning tools or subscription-based products, also offer opportunities for sustained fee income growth.
Check out our report Loyalty programs in banking and article Customer centricity in deposit management
Better understand and engage with your customers
Think about your own banking habits – how much has changed in just a few years? Now consider the expectations of younger, mobile-first customers who demand seamless, intuitive experiences. Neobanks are thriving because they’ve built their entire business models around these preferences. The gap between what customers want and what many traditional banks offer is growing wider.
Engaging with existing clients effectively starts with understanding their unique needs through robust customer segmentation. Banks should aim to offer straightforward pricing and intuitive user experiences that foster trust and loyalty. Tailoring communication and product recommendations based on customer preferences can further enhance satisfaction and deepen relationships.
Simplicity is key here – our research shows that straightforward pricing and user-friendly experiences win customer loyalty every time. Review your pricing models. Are they clear, competitive, and easy for customers to grasp? Simplifying your offerings can improve customer satisfaction and streamline your operations at the same time.
Explore our resources:
New emerging retail banking customer segments in the US
Customer & market segmentation
Manage regulatory risks
Regulators are pushing for greater transparency and value in financial services. These changes aren’t optional, and adapting to them requires focus and investment. The good news? Clearer, more transparent offerings often resonate better with customers.
Banks should integrate compliance into their strategic initiatives, ensuring it aligns with broader business goals. Viewing regulatory changes as opportunities to differentiate through customer-centric and transparent offerings can strengthen brand reputation and customer trust.
Explore our resources:
Addressing wealth management pricing challenges in the Consumer Duty era
EU Retail Investment Strategy: Legal and commercial implications
Leverage efficiencies from AI and advanced technology
Advanced technologies, such as generative AI and predictive analytics, offer significant opportunities for improving efficiency and decision-making. Banks can harness AI to optimize operations, enhance customer insights, and deliver personalized experiences at scale. These tools enable institutions to stay competitive while reducing costs and improving service delivery.
Read our article: Harnessing the power of generative AI in banking
By aligning these strategies — embracing customer-centric approaches, optimizing interest margins, generating fee income, leveraging advanced technologies, and managing regulatory challenges — banks can unlock sustainable growth. When executed effectively, these efforts drive improvements in volume, income, customer advocacy, and relationships, while opening doors to new, attractive market segments. Together, they form a roadmap for financial institutions to “better grow” and thrive in an evolving market landscape.
Drive innovation with Simon-Kucher
The financial services industry is under pressure, but that pressure is also driving innovation. At Simon-Kucher, we specialize in helping leading banks navigate similar challenges and turn them into growth opportunities.
Our experts are ready to help you find the right solutions for your business. Reach out to Simon-Kucher today, and let’s start planning for your success in 2025.
