The news: Established banks could add over half a trillion dollars to their top lines in the coming years if they adopt business models used by digital-only challengers, per a new report from Accenture.

More on this: Incumbents and challengers currently operate in two different business models, the report shows.

• Vertically integrated: Established banks stick to specific linear areas, like just selling their own products or distributing other companies’ products.
• Non-linear: Challengers operate as “packagers” that create new propositions. These players include companies that offer embedded models, like buy now, pay later (BNPL) for others.

Accenture said that digital-only players with non-linear business models outperformed fellow challengers that simply copied established banks’ models:

• From 2018 to 2020, the two had a compound annual growth rate (CAGR) of 76% and 44%, respectively.
• Incumbents with vertically integrated models showed a CAGR of less than 2% during this time—although Accenture notes that they have larger bases that influence their percentage rates.

Possible solutions: Accenture lays out four models that incumbents can embrace to keep up with challengers—they can pick one or use a combination.

• Only selling products that the bank makes, exercising total control over value chains.
• Create a distribution-driven ecosystem, which entails distributing other banks’ products.
• Take a bundling-or-building approach, by creating new propositions and distributing them or using third parties for distribution.
• Venture into banking capability as a service by selling business processes or technologies to other companies.

The big takeaway: Incumbents can’t easily escape the sometimes decades-old legacy technologies their systems are built on, making it difficult to embrace a new model. Due to these constraints, banks have three options for adding digital capabilities, according to the playbook that smaller financial institutions follow:

• Build enabling technology internally and integrate it with existing software. This will require straddling both old and new software, and still takes time.
• Acquiring a challenger simplifies and speeds up incumbents’ access to new tech, as well as their growth.
• Partnering with a digital-only player is the fastest route because it doesn’t involve company integrations or allocating in-house resources toward originating completely new products. The only integration required is for the relevant technologies.