Modular approaches deliver low-risk, high-impact revenue diversification for UK banks

Earlier blogs in this series discuss the challenges facing UK banks, with UK bank CFOs projecting a hike in costs and declining margins. Meanwhile structural changes in the industry – including alternative payment methods – threaten traditional interest-focused revenue models. According to the Q3 2025 Bank CFO survey from Deloitte UK, most CFOs recognise that diversifying revenue away from interest-related products is the answer.

The problem is how to get there at a time when costs are high and margins tight. The last thing banks need is the risky, capital-intense and time-consuming prospect of fully replacing their core banking technologies.

Modular approaches: modernise services at low cost and risk

The main dynamics in UK banking over the next five years are well understood: the ongoing switch to a digital economy means not just that consumers expect financial services to be delivered online – but that banks should pivot from card issuing to a blend of card issuing and e-commerce acquiring.

If banks choose not to participate in e‑commerce credit opportunities, they should expect to lose out to digital-first players.

Another pivot in interest-related products is the diversification of credit. While credit products will always be vital to banks, new forms of credit such as Buy Now, Pay Later (BNPL) and embedded insurance/warranty products are great means for banks to diversify away from the old standards of credit cards and personal loans.

In particular, BNPL at checkout is shifting how financing products work. BNPL allows consumers to enjoy short-term interest free loans on their purchases. For BNPL, the burden of interest is born by retailers, who pay higher transaction fees to the BNPL provider, which is often a bank. This not only helps to boost merchant sales, but also is reduces risk for banks, as the interest for the capital is paid at loan origination.

What’s more, by combining a portfolio of payment and credit products with an e-commerce acquiring offer, banks can partner with retailers to offer these products at online checkout. If banks choose not to participate in e‑commerce credit opportunities, they should expect to lose out to digital-first players such as Amazon credit, Apple Pay Later and others.

Open to new revenue: combining acquiring with payments and more

In a separate blog, we outline why UK banks should be looking to grab the open finance opportunity with both hands, building on the great success story of UK Open Banking. When it comes to online acquiring, banks can build on open banking’s API infrastructures to share customer and transaction data with retailers and create API-based services that produce fee income. For instance, Citadele has embedded its Klix Pay Later product at merchant online checkouts. Innovations like these keeps banks profitable and relevant at a time when payment service providers and platforms threaten their traditional role.

With the number of businesses accepting online payments set to soar by a third by 2030, there’s never been a better time for banks to blend their traditional offerings – payment cards and credit products –with a refreshed online acquiring proposal including an e-commerce gateway that can combine acquiring with innovative offerings such as BNPL, embedded finance, loyalty and more.

Adopting a modular approach to introducing new offerings means that products can be delivered to market faster and for a fraction of the cost of whole-system replacement, while risk of failure is also dramatically reduced. What’s more, the lower costs of a modular approach means that banks can afford to deliver new products to market at a higher rate, diversifying their revenue streams and keeping up with nimble digital-first competitors.

For more on how to modernise and diversify your online offering at low cost and risk, contact Edgars Bremze at Tieto Banktech: edgars.bremze@tieto.com 

This is how we fix it:

API Banking: Empowering Marketplaces

E-commerce gateway