Our latest report examines the changing power play between the banking and the technology sectors and explores how incumbent banks can become ‘disruption proof’.
The banking sector is no stranger to innovation. Over the past ten years the capacity to disrupt banking business models has grown beyond all recognition fuelled by the emergence of AI, data analytics, Cloud banking and the blockchain. Nobody has done more to disrupt the traditional banking models than the banks themselves, who last year spent $261bn globally on digital investments.
Whilst much of this spend has traditionally been targeted at hygiene factors, cleaning up legacy IT estates and protecting customer data from the increasing threat of cyber attacks, future investment priorities will need to evolve if the incumbent banks are to maintain their existing client books. That is not to downplay the ongoing importance of good hygiene; banks will continue to evolve their IT platforms to improve operational efficiencies and they will need to increase investment in protecting against cyber risks. But banks will also need to prepare for a shift in how the sector drives innovation, and more importantly, who is potentially driving it.
To date, innovation has been spurred on by a diverse and energetic FinTech sector in which new ideas and processes are easily accessed by incumbent banks working collaboratively with the FinTech sector. This model will continue, but we could be about to witness a rapid evolution.
It is already the case that two of the biggest home-grown financial services companies in China are large tech companies. In the US, the ‘BigTech’ companies like Amazon are also starting to follow suit. Given their increasingly global footprint, these BigTech firms possess the distribution firepower to disrupt retail banking models well beyond their domestic market.
In safeguarding businesses against such an existential challenge, the incumbent banks are faced with what could prove to be a narrow window of opportunity to respond. This will mean placing the customer experience at the heart of future digital investment. Truly extending the benefits of the digital revolution means that new products and services offering more choice, flexibility and convenience, combined with lower and more transparent pricing, will become the hallmarks of tomorrow’s banking market. Banks have no time to waste in making this a reality.
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