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BCG report: Incumbent banks are losing their grip on industry growth; capital-light noninterest income grew by 1.8%; but the relative amount generated per asset decreased by 18%

May 28, 2025 //  by Finnovate

Traditional banks are losing their grip on industry growth, according to a new report from Boston Consulting Group (BCG). The global banking industry has grown at a compound annual growth rate (CAGR) of 4% over the past five years, but traditional banks are ceding the most valuable ground to fintechs, digital attacker banks, private credit funds, and nonbank market makers. Incumbent banks have relied on balance-sheet-driven net interest income to contribute roughly 85% of the growth. Yet they struggle to generate capital-light noninterest income: while it grew by 1.8% in absolute terms, the relative amount generated per asset decreased by 18%. The report reveals that these shifts pose a structural challenge to traditional banks and calls for bold transformation and a rethinking of the relationships that link banks, regulators, and wider society. Looking at leading banks, the report notes three patterns that the market rewards: scale (not size), specifically in terms of domestic market leadership; the ability to generate a superior share of fee income; and market-leading productivity. The report also highlights four strategic approaches that today’s banking leaders pursue: front-to-back digitization; customer centricity; focused business models; and M&A champions. Banks can take more than one of these approaches, but all require strong digital capabilities. “Banks need to look boldly at their business portfolio and make hard calls to focus on fewer areas where they can win,” said Andreas Biffar, a BCG managing director and partner and a coauthor of the report. “Simplification of products and processes with comprehensive front-to-back digitization is a nonnegotiable element in the current context.” In addition, successful strategic implementation of AI could be a game changer, although many banks still struggle on this front. According to the report, banks need to adopt a vigorous and focused approach to AI implementation. If AI has not yet delivered for all banks, that may be due more to challenges in scaling and lack of holistic adoption by employees and customers than to issues with the technology. As agentic AI and machine voice emerge as even more powerful productivity levers, winners will take effective action to incorporate them. Nevertheless, AI alone may not be sufficient. Much of the potential value may be captured by nonbank players, which are currently better positioned to benefit from its applications.

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