Hi-tech threat to high-street banks

HIGH STREET banks stand to lose as much as 25 per cent of their profits within the next five years unless they react more effectively to the threat of new entrants breaking into the retail financial services market.

According to a new study on the future of the banking industry, almost two-thirds of senior executives believe that competition from non-traditional players will have a big impact on the sector.

The authors, John Reeve and John Harrison at Deloitte Consulting, say the real threat comes not so much from supermarkets or operations like Prudential's Egg, which have yet to show they can win profitable business long-term, but from firms who are in a better position to exploit new technologies, particularly the Internet.

Mr Reeve says the challenge was more likely to come from software firms like Intuit or Microsoft, or from foreign institutions which are more likely to embrace new electronic delivery systems to break into new markets without having to set up branch networks.

"What is worrying for banks is that most of their profits come from 20 per cent of their customers and these are the ones that new entrants will cherry pick," says Mr Reeve. "They may only lose 5 per cent of their customers but that is 25 per cent of their profits."