Boosting Net Interest Margins: Why banks must not wait to innovate

Only 23% of UK banks’ customers use more than one of their products, as banks struggle to meet customer needs

SaaScada study shows that, as net interest margins come under threat, banks must innovate to launch compelling new products and grow their share of wallet

NextGen data-driven core banking engine, SaaScada, today launched a new report: Boosting Net Interest Margins: Why Banks Must Not Wait To Innovate, revealing UK banks’ ongoing struggles to understand customer needs and provide them with relevant banking products at pace.

The report analyses data from a survey of 150 heads of innovation at UK retail and business banks revealing that banks are facing increased pressure to innovate, grow their profitability and increase their share of wallet with existing customers. Key findings include:

• As balance sheets grow, banks are under increasing pressure to innovate: amidst increased  interest rates, 70% of banks have seen the total value of their balance sheet grow in the past 12 months. At the same time, 77% of banks say the pressure to innovate has increased over the past 12 months.
• To grow profitability, banks need to increase their share of wallet: 76% of banking innovation heads say it’s very important or critical to increase the number of banking products or services that each customer buys from them. But, just 23% of banks’ customers are using more than one of their products.
• Banks struggle to understand their customers’ needs and sell new, relevant products to them: 90% of banking innovation heads agree they need to understand customers better to stay ahead of competitors but often fail to follow the data.
  • 81% agree customers are likely to switch to a bank that aligns with their social values, but just 22% think they should be considering launching a product focused on sustainable and ethical investments.

Nelson Wootton, CEO and Co-Founder, SaaScada commented: “Right now, UK banks are under immense pressure to balance the opposing levers of growth and profitability. To increase their net interest margins, banks should tap into the treasure trove of customer data they have access to. This data reveals spending habits and challenges, but is currently slipping through banks’ fingers. By getting a handle on their data, banks can better understand customer needs, and launch lucrative and innovative products to address them. If not, they will find themselves left out in the cold.”

The innovation pace race

The report warns that banks who can’t launch new products at speed to grow profitability will likely see their net interest margins shrink. 75% of respondents agree that to survive, banks need to launch products in months not years. Yet it takes an average of 8.4 months to launch a new product, with nearly half (45%) of banking innovation heads saying by the time they launch new banking products, they are already outdated.

Compounding the issue is the fact the industry continues to be plagued by setbacks. 51% have experienced delays launching a new product in the last 12 months, with an average delay of 3+ months. Delays caused affected respondents to lose out on a total of £51.1 million[1] in missed revenue in the last year.

Other challenges cited by respondents that had experienced project delays include:

• 66% say delays wasted time, money, and resources
• 66% were called in front of the board or leadership to explain the issues
• 64% had to scrap or delay other projects
• 51% attracted increased regulatory scrutiny

Wootton continued; “Banks must focus on improving their agility to avoid lengthy, costly product delays. To meet this goal, banks need to assess their core banking systems, and gauge whether these are agile enough to develop new products and services at pace. Truly cloud-native core banking platforms are the only way banks can bake insights and flexibility into their product offerings. Without this capability, banks will fall behind the competition and fail to keep up with soaring customer expectations.”

You can read the full report, Boosting Net Interest Margins: Why Banks Must Not Wait To Innovate here.

About the research

The data was gathered in April 2024 from 150 UK-based business heads/C-Suite staff at retail and business banks who are responsible for product innovation (e.g., Heads of Digital Transformation/CTOs/Chief Innovation Officers/Heads of Innovation/CEO). The banks were mid-sized, with a balance sheet of £0.5Bn – £4Bn. 

About SaaScada

SaaScada is a NextGen data-driven core banking engine built using cloud-native technology to deliver lightning-fast data speeds and flexibility. SaaScada’s unified product hub makes it easier, cheaper & faster to build a range of feature-rich products to deliver great customer outcomes via open APIs to the partner ecosystem.

[1] Figure calculated based on the mean revenue missed by respondents (£663,333.83) multiplied by the 77 respondents who experienced product delays.