With customer behaviors changing and challengers such as digital giants, fintechs and neobanks vying for market share, traditional retail banks must act now or lose out later in their quest for growth, according to a new report by Boston Consulting Group titled “Global Retail Banking 2019: The Race for Relevance and Scale.”

“Customer behaviors are shifting, sometimes dramatically, led by those who want seamless digital banking capabilities embedded in their daily lives,” Sam Stewart, a Sydney-based BCG partner, coauthor of the report and global leader of the firm’s retail banking segment, said in a statement. “The combination of these expectations and technology-enabled solutions will eventually erode banks’ traditional advantages, so they need to take action now.”

Retail banking is experiencing a strong-pull away from vertical integration toward a platform-based or “stacked” industry structure, according to the report. At the top of the stack, companies that offer better or more attractive customer interface options can provide a variety of services through ecosystems, without having to develop their own banking products and infrastructure.

The report said that while there is a clear trend toward more digital engagement, human interactions clearly still matter to many customers. Since financial decisions can be complex, high value, and emotionally important, many banking customers still value face-to-face advice from knowledgeable experts. This means that branches will remain an important channel, particularly in some geographic areas, but will play a fundamentally different role in the evolving omnichannel universe. At the same time, other innovative means of interaction, such as video or web chat, are being explored.

“The challenge for incumbents is to transform the traditional relationship model into the digital world while continuing to build trust and credibility – and while also finding new ways to interact virtually with customers and maintain their loyalty,” Thorsten Brackert, a Frankfurt-based BCG partner and coauthor of the report, said in the statement.

Retail banking revenues globally are expected to rise at a compound annual growth rate of 4.2 percent through 2025, to reach nearly $2.9 trillion, according to the report. Emerging markets will lead this expansion.

The report said that incumbent banks need to rethink their strategies and the business models they want to pursue in the evolving industry landscape. BCG identified four viable options emerging to various extents in different markets:

Digitized Full-Service Banks: In this approach, banks invest heavily in digitizing their core to defend the vertically integrated model and continue to offer a proprietary catalog of their own products through their best-in-class digital channels and branch network.

Open Banks: These banks build and distribute their own products to their own customer bases while simultaneously expanding their reach using distribution allies to enhance their product and service offerings.

Ecosystems: Even more so than for open banks, this model requires seamless integration with partners and the ability to capture and share data from multiple sources to provide customer value – both in and beyond banking.

Product Engines: In this model, banks recognize that new competitors may be better placed to win the customer interface, so they refocus to act as manufacturers of best-in-class products that are distributed mainly through third-party channels.

The report said that banks should start their adaptation by assessing their own position versus current and emerging competitors, evaluating the business model options, and prioritizing investments to pursue their chosen path.

“Whichever model a bank chooses, it must be clear on its value proposition for target segments, as well as on the business and operating model needed to deliver on that proposition,” Muriel Dupas, a London-based BCG retail banking expert, said in the statement.