Embracing the Pivot: Shifting Revenue Models for Banking

By melding bold strategy with emerging technology, banks can build new fee-based revenue streams that attract, impress, and retain customers.

The two largest revenue generators for the banks are interest income (through loans to consumers and businesses) and fees and commissions though retail banking, commercial banking, payments, and wealth management products and services. For large banks, fee-based income tends to fall in the range of 20-50%, with income-based revenue making up the balance.

The prolonged high-interest environment has pressured interest income, and most banks have seen loan volumes drop over the last 2-3 years. As a result, banks have strategically moved towards focusing on fee-based revenue streams. Recent technology innovations and improved data interconnectedness are already giving banks new opportunities to advance fee-based revenue further, and the next few years will be critical in growing and refining these new revenue streams. The major strategic questions for banking leaders are: What can banks do to streamline this pivot? And what are the technology investments that need to be aligned to enable this shift?

In an environment where lending is down significantly, banks should seek to offer sophisticated value-added services that extend existing customer relationships.

None of this means that banks should deprioritize lending. Some banks are doubling down on investments in lending to be better prepared for the future when interest rates come down. Further, many technology initiatives that improve fee-based offerings will also advance lending products by improving experience, convenience, and lead management. Even so, in an environment where lending is down significantly, banks should seek to offer sophisticated value-added services that extend existing customer relationships.

Moving Towards a Fee-Based Strategy

Strategically, banks need to do everything possible to generate fee-based revenue through products and services that deliver meaningful value to customers. Account fees (checking and savings account maintenance), transaction banking fees (payment processing, wire transfers, treasury services, trade finance), service charges (wealth management, advisory services, and foreign exchange transactions), and credit card fees (annual fees, late payment fees, foreign transaction fees) all need to be reconsidered, with a strong focus on customer needs and satisfaction. 

Of course, it’s not as simple as raising fees. Banks must activate new or evolved fee-based products and services that various customer segments want and need. For example, instead of offering simple, isolated small and medium-sized business (SMB) banking services such as checking, savings, and cash management, banks need to play an advisory role, guiding SMB customers in managing their savings (by moving money in a frictionless fashion to high-return vehicles) while also making their borrowing more seamless and strategic. To enable this, banks must offer integrated services and experiences, build connectors with industry-standard finance, accounting, and HR platforms, and offer integrated value-added services such as automated recon, taxation, and tailored products and services.

With a new open banking regulation (CFPB 1033) on the horizon, banks should also look beyond the standard APIs mandated by regulation. They should plan an API strategy to charge for premium APIs and leverage product APIs to win new business. Premium APIs will serve use cases like digital customer verification and provide real-time integration for SMBs to link business accounts to online accounting, tax, and expense management platforms. Product APIs (such as auto loans, mortgages, savings accounts, etc.) can enable quotes and even applications directly on partner apps and sites, reducing acquisition costs and turning partner channels into seamless customer acquisition channels. Some API strategies can even generate alternate revenue streams. For example, suppose specific customer segments do not fit into the bank’s credit risk parameters. In that case, they can potentially sell these leads via APIs to non-banks or specialized lenders in real time.  

Deeper approaches to customer segmentation and associated fees-based services mapping and positioning can ensure that the right products and services are presented to customers at the right time. Banks can tailor fee-based products that meet specific needs, improving customer satisfaction and loyalty.

Banks must invest in data capabilities designed to continuously move clients further up the advisory funnel, with differentiated strategies for each significant wealth bracket.

Strategies for Increasing Wealth Management Income

While banks have long offered fee-based wealth management, most have not yet achieved a genuinely responsive service-driven model designed to continuously increase each client’s engagement with the bank’s advisory services. Banks must invest in data capabilities designed to constantly move clients further up the advisory funnel, with differentiated strategies for each significant wealth bracket (mass affluent, core affluent, high-net-worth, ultra-high-net-worth, etc.). Banks with wealth management offerings can navigate this evolving landscape by concentrating on several critical strategies:

• Identify target wealth management clients: After banks identify their target wealth brackets, they can leverage existing customer relationships to offer wealth services to customers as they approach specific asset thresholds or significant life events. One structural advantage for banks is the sheer amount of customer data they can access to enhance customer value and engagement; many still need to fully leverage this data to cross-sell. Banks must offer the right services at the right time, using data-driven strategies to market wealth services to the clients most likely to engage. Solutions like Wipro WealthAI can combine data, AI, and GenAI, empowering advisors with customer 360, live inquiry, and recommendation engines that go far beyond legacy information collection and aggregation.
• Provide comprehensive financial planning: Offer an integrated suite of services that encompasses investment, retirement, tax, trust, and estate planning to provide holistic financial plans. This holistic approach meets clients' diverse needs and justifies premium fees for these all-encompassing services. In particular, banks should regularly reevaluate the services (philanthropic/green advisory, etc.) offered to ultra-high-net-worth individuals and families, seeking to avoid churn among these extremely high-value accounts.
• Adopt robo-advisory services: Implement automated investment platforms to attract tech-savvy mass affluent clients. As a new technology-first generation enters the banking ecosystem, banks have a massive opportunity to reach mass affluent and mass retail clients with efficient, light-touch wealth management services. For less wealthy clients, even simple spend analytics tools linked to a checking account can begin to build the recognition that their bank is also an advisory partner.
• Customer hyper-personalization: By leveraging technology (particularly AI) to gain insights into customer behavior, banks can offer tailored financial products, including alternatives and advice, improving customer satisfaction and loyalty, which can translate into increased fee-based revenue. For high-net-worth individuals ($1-5 million in investible assets), carefully layering AI-driven automation enables a service model that combines personalized attention with operational efficiency. The largest banks support hundreds of thousands of such accounts, and more efficiently serving those clients will translate into meaningful bottom-line improvements.

The wealth management space is primed for innovation. Digitalization and AI-based tools are giving banks powerful new levers to convert banking account holders into long-term wealth management clients at scale.

Technology Initiatives to Stick the Landing

A suite of data-driven technology upgrades will give industry leaders a distinct edge as banks seek to achieve this pivot toward fee-based revenue rapidly. Some of the highest priority investments will be:

• Frictionless Banking. Banks should accelerate investment in digital platforms to enhance customer experience and streamline fee-based services, notably by expanding mobile banking capabilities to offer seamless and convenient services (such as sophisticated banking and financial planning tools geared toward Gen Z customers).
• Open Banking and AI. Building internal and external APIs to seamlessly access data within the organization will enable banks to build the foundation for new and innovative products and services. By leveraging data and AI, they can offer personalized fee-based offerings and gain insights into customer behavior and preferences.
• Proactive Advice-based Banking. Increasingly, banks will find opportunities to leverage customer data to build insight and recommendation engines that offer “always-on” advice to customers.
• Cybersecurity. Strengthening cybersecurity measures to protect customer data and secure fee-based transactions should be a priority, as cybersecurity breaches can quickly undermine innovative fee-based strategies.

The benefits of these investments will not be limited to fee-based revenue streams. Many digital interventions that will power tomorrow’s new fee-based services will also improve the loan funnel, providing critical support when banks are limited in what they can spend on digital lending transformation.

The Fee-based Advantage

Beyond navigating the aftermath of recent interest rate hikes, a shift to fee-based income will help banks achieve more stable and diversified revenue streams in the long term. If executed carefully, increasing fee-based income is entirely consistent with maintaining positive customer relationships. Banks can avoid customer dissatisfaction insofar as they can demonstrate that the value they add goes above and beyond any fees they charge.

Most importantly, a more fee-based strategy will provide durable competitive advantages. Today, retail and commercial customers are overwhelmed by the many cumbersome digital relationships they must maintain to keep their finances on track. Banks that seamlessly offer everything in one place — savings and checking accounts, yes, but also a holistic portfolio of cutting-edge financial services — will be customer magnets.

About the Authors

Ashish Shreni
US Banking Practice Head, Wipro Consulting

Ashish leads Wipro’s Banking Consulting practice for the United States, where he is responsible for CXO advisory and relationships, data and analytics, digital strategy, and process and technology transformation. His expertise extends to risk management, partnership and alliance strategies, industry representation, and managing industry relationships.

Satish Avhad
Global Practice Head, Wealth Management, Wipro Consulting

Satish has over 18 years of experience in consulting, business development, delivery, and client leadership in wealth and asset management. He has held senior leadership positions at Ernst & Young and has worked with global clients such as SEI, Wells Fargo, BlackRock Solutions, Morgan Stanley and Northern Trust. He has experience with platform implementations including Blackrock Aladdin, Charles River CRIMS, SEI SWP, Trust 3000, and Omgeo CTM, and has delivered AI-based solutions leveraging predictive analytics, natural language processing, and machine learning models.