Reimagined business models could reinvent growth for retail banks, says PwC

UK retail banks are at a critical juncture where identifying their core strengths and aligning with focused business models could better equip them to navigate a rapidly evolving market, according to a new report from PwC, The Reinvention of Retail Banking: How focused business models can unlock value.

The report highlights the opportunity for UK banks to build on their existing capabilities by aligning with one of several new archetypes - distinct, strategic roles that enable sharper focus, operational efficiency, and more agile responses to customer needs. 

From The Factory to The Funder, these archetypes include focusing on, for example, producing financial products for third-party distribution; acting as a customer-focused intermediary; targeting niche segments with end-to-end solutions; or leveraging scale to offer unique value propositions.

While the interest rate environment in recent years has buoyed banks’ performance, banks continue to face rising customer expectations, rapid technological change, and mounting regulatory demands, while investment budgets remain heavily tied to risk and compliance—limiting the ability to innovate and adapt.

Meanwhile, across many industries, the ‘department store’ model - offering a wide range of products and controlling every step of the value chain - has been replaced by more specialised, focused approaches. Retailers and telecoms companies, for example, have redefined their roles to remain competitive, and UK banks are poised for a similar shift. 

Retail is one example of an industry that has seen monumental change. Over recent years, mass-market department stores have steadily given way to more specialised, digitally-enabled, and often direct-to-consumer businesses. In response, major retailers have followed the example set by big-tech firms, shifting to platform-based approaches that support their own operations while also serving other businesses in the ecosystem, including competitors.

Simon Westcott, financial services strategy leader, PwC UK comments:

“This is a pivotal moment for UK banks. Across industries, we’ve seen the ‘department store’ model give way to more focused, specialised approaches. In sectors such as retail or energy, we’ve seen a decisive shift towards greater specialisation and differentiation. Similarly, banks that double down on their core strengths will be better positioned to deliver what customers need while driving value for shareholders.

“Change is already underway, and will accelerate. Supermarket banks are being sold, retailers are evolving into distributors, challengers are consolidating, and specialist lenders are being absorbed by larger players.

“The era of broad, vertically integrated banking is drawing to a close and banks now have the option to select an archetype aligned with their strengths, enabling them to prioritise where they add the most value, while streamlining their operations to become more agile and customer-centric. This is not discarding the past, but refining it for the future.”

PwC’s findings draw on detailed analysis of industry trends and successful transformations across other sectors like retail and telecommunications. The report also highlights four key drivers reshaping banking: consumer expectations; financial performance pressures; technological advances; and an evolving competitive landscape.

Mark Batten, banking and capital markets leader, PwC UK, adds:

“Banks that make deliberate, informed choices about their roles in the ecosystem will be better positioned to deliver sustainable value and remain competitive in the years ahead. By focusing on where they can add the most value, banks can enhance their resilience, agility, and ability to serve their customers effectively.”

-Ends-

Notes to editor

The seven archetypes identified by PwC are:

• The Factory: Focuses on cost-efficient operations and balance sheet strength, producing financial products for distribution through third parties.

• The Distributor: Specialises in customer insights and experience management, acting as an intermediary by distributing products created by manufacturers.

• The Segment Hero: Targets niche segments with specialized, end-to-end solutions, combining financial and non-financial services tailored to specific customer groups.

• The Advisor: Provides personalized advice and insights, focusing on building trusted relationships rather than offering direct banking products.

• The Enabler: Develops and supplies technology solutions to other financial entities without direct consumer interaction or regulated banking activities.

• The Funder: Concentrates on providing the financial backing for specific, often high-risk asset classes without handling product origination or servicing.

• The Conglomerate: Leverages scale and integrated data insights across business lines to offer unique value propositions, requiring substantial size and scope.