Retail banking product innovation stalled for 20 years

Industry participants say the last substantive changes to retail banking products came in the late 1990s and early 2000s, citing the Northern Rock ‘together’ mortgage, the Virgin One account and Halifax’s offset account as examples.

Those products combined current accounts, savings and mortgages or blended secured and unsecured lending. Customers could offset savings against a mortgage balance and shorten the loan term without manual calculation. The design altered how a household managed multiple financial products with one integrated mechanism.

Since then, firms have concentrated on digital upgrades such as faster onboarding, improved mobile interfaces and greater automation. Product terms and pricing have changed in small ways, but few entirely new retail products have reconfigured how consumers hold or move money. Industry observers note, ‘A savings account with a slightly different rate isn’t innovation.’

There are commercial effects for banks. Current accounts typically produce limited margin, and lenders rely on customers adding savings, loans, insurance or payments services to create profitable relationships. Industry analysis points to an approximate threshold of 2.4 products per customer as the point at which a relationship becomes materially valuable. Banks report that number is falling as customers shift parts of their finances to specialist providers while retaining a single account.

Fintech firms built products to address specific customer problems rather than repackaging existing offers. For example, Monzo launched tools that help users track spending, and Starling introduced cash-flow management features aimed at small businesses. Those product approaches focused on defined needs and promoted adoption based on functionality.

Banks continue to hold advantages in customer trust, existing account relationships and long histories of transaction data. Industry observers argue that those strengths will affect outcomes only if institutions change the underlying product set, designing offers around life events, cash-flow patterns, small-business needs and household financial wellbeing. ‘Real innovation means building around how people actually live,’ industry observers note.

Open banking and richer data create technical options to show customers a fuller view of their finances. Industry commentators say boards will need to approve and fund new propositions rather than prioritise easier operational fixes if retail product lines are to change. They add that the next phase of product development should centre on creating retail products that change how customers manage money.