Traditional banks lose market share to digital competitors in financial services

Mumbai: Traditional banks are losing ground in the fast-evolving financial services space to agile, tech-driven rivals. Even as overall sector revenues grow, incumbents struggle to hold on to their share, according to Boston Consulting Group’s (BCG) latest Future of Finance report.

“Financial services revenues are growing—but banks are not capturing their fair share,” BCG says. The value, it notes, is shifting to fintechs, private credit funds, nonbank liquidity providers, and digital-native banks. “Maturing digital assets appear to be on pace to cause significant disruption, with most banks currently on the outside looking in.”

The fastest-growing players are also the most digitally savvy. Digital attacker banks clocked 85–100% CAGR in revenues over the past five years. Private credit players and retail trading platforms are close behind. Traditional banks, in contrast, posted only 10–15% CAGR, despite holding the largest share of balance-sheet assets. The challengers’ edge stems from scalable platforms, lean cost structures, and a digital-first approach. “Nontraditional bank competitors are generating new revenue pools,” BCG says. “The best attackers are positioned for rapid growth, thanks to modern technology stacks and front-to-back digitised operating models.”

The disruption extends beyond retail finance. In capital markets, boutique advisory firms and nonbank market makers are chipping away at incumbents’ fee income. “Private credit has been gnawing away at bank share, particularly in the US,” the report says.

At the same time, banks are grappling with long-term structural challenges. Fee income is in decline, noninterest income productivity dropped across geographies, and cost pressures are rising. Despite years of tech investment, efficiency improvements are slowing. “Many banks struggle to counter these trends,” BCG says, noting that pricing remains an underused lever. Neobanks’ cost-to-serve, it adds, is often a tenth that of incumbents’. “New competitors are winning on productivity.”

Investors have picked up on this divergence. In East Asia and the Eurozone, most bank stocks trade below book value. “Investors are avoiding banks that may be in a vicious cycle of outdated operating model and low profitability,” BCG warns.

However, a few outperformers are bucking the trend. These banks follow four strategies: full-scale digitisation, building multiproduct digital relationships with customers, narrowing focus to high-return businesses, and pursuing digital-led M&A. “Banks that generate a significant portion of their revenue from noninterest income—such as wealth management, payments, and advisory services—tend to be more resilient,” BCG says.

“The overall value shift away from banks might seem relatively small so far, but its trajectory should encourage banks to take bold action to capture their fair share,” BCG cautions. Without decisive reform, banks risk becoming “commoditised providers of balance sheets and risk management.”