As the world waits for mass vaccination to revive economic activity, general malaise has overtaken the financial services industry (FSI). And things will probably worsen before they get better: US banks are expected to suffer US$318 billion in net loan losses by the end of 2022, according to Deloitte.

But the extraordinary economic impact of the pandemic has only intensified mortal threats to the industry’s business model that have been brewing for years. If the global economy were to recover completely tomorrow, FSI incumbents would still be in a highly precarious position.

In a new whitepaper, we argue that going back to the pre-Covid “normal” is not an option for financial services. Fortunately, the rise of the subscription economy points towards frontiers of untapped growth for the sector.

Shaky ground

Growing regulatory pressures, low interest rates, digital disruptors (both fintech and Big Tech) and savvy customers demanding better experiences at lower costs all have put wide cracks in the FSI’s legacy business model. We’ll confine our argument here to two key revenue streams.

First, the pervasive and persistent low-interest-rate environment has severely impacted profitability since the 2008 global financial crisis. As interest rates are determined by central banks, FSI companies have no control over this destructive and volatile aspect of the business. The Covid-19 fallout has increased downward pressure on interest rates, which have dipped into negative territory in many countries. It is safe to say that there is no short-term end in sight to this trend.

Second, customer fees may no longer be as reliable a…

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