Innovate or Stagnate: A Call for UK Banks to Boost Net Interest Margins

By Gloria Methri

As net interest margins come under threat, banks must innovate to launch compelling new products and grow their share of wallets.

UK banks are facing mounting pressure to innovate and meet their customer’s evolving needs, particularly as interest rates rise and balance sheets expand. With 70% of banks reporting growth in their total balance sheet value over the past year, the urgency to enhance profitability has never been greater.

SaaScada, the next-gen data-driven core banking engine, has unveiled a new report titled “Boosting Net Interest Margins: Why Banks Must Not Wait to Innovate.” The report reveals UK banks’ ongoing struggles to understand customer needs and provide them with relevant banking products at a rapid pace. Drawing insights from a survey of 150 heads of innovation at UK retail and business banks, the report reveals an urgent call to action for the industry.

As per the report, 76% of banking innovation leaders emphasised the importance of increasing the number of products or services each customer uses. Yet, a mere 23% of customers currently engage with more than one offering, highlighting a critical gap in relationship building.

Understanding customer needs has become paramount, as 90% of innovation heads agree they need to understand customers better to stay ahead of competitors but often fail to follow the data.

Furthermore, with 81% of leaders noting that customers are likely to switch to banks that align with their social values, there is a glaring disconnect—only 22% feel their institutions should prioritise launching sustainable and ethical investment products. As the landscape shifts, it’s clear that UK banks must innovate swiftly to boost net interest margins and secure their place in a competitive market.

Nelson Wootton, CEO and Co-Founder of SaaScada said, “Right now, UK banks are under immense pressure to balance the opposing levers of growth and profitability. To increase their net interest margins, banks should tap into the treasure trove of customer data they have access to. This data reveals spending habits and challenges but is currently slipping through banks’ fingers. By getting a handle on their data, banks can better understand customer needs and launch lucrative and innovative products to address them. If not, they will find themselves left out in the cold.”

The innovation pace race

The report warns that banks that can’t launch new products quickly to grow profitability will likely see their net interest margins shrink. 75% of respondents agree that to survive, banks need to launch products in months, not years. Yet it takes an average of 8.4 months to launch a new product, with nearly half (45%) of banking innovation heads saying that by the time they launch new banking products, they are already outdated.

Compounding the issue is the industry’s continued plague of setbacks. 51% have experienced delays launching a new product in the last 12 months, with an average delay of 3+ months. Delays caused affected respondents to lose out on a total of £51.1 million in missed revenue in the last year.

Other challenges cited by respondents who had experienced project delays include:

• 66% say delays wasted time, money, and resources
• 66% were called in front of the board or leadership to explain the issues
• 64% had to scrap or delay other projects
• 51% attracted increased regulatory scrutiny

Wootton continued, “Banks must focus on improving their agility to avoid lengthy, costly product delays. To meet this goal, banks need to assess their core banking systems, and gauge whether these are agile enough to develop new products and services at pace. Truly cloud-native core banking platforms are the only way banks can bake insights and flexibility into their product offerings. Without this capability, banks will fall behind the competition and fail to keep up with soaring customer expectations.”