The banking industry faces change, probably in a never known pace and relevance than before. Although COVID-19 had a positive impact on some banks due to a high increase in asset trading volumes and associated commissions, it also acts as a transformation catalyst. COVID-19 is assumed to substantially change the consumer behavior towards a cashless society. The trend towards a hybrid banking customer is continuing.
Structural Changes
The classical economic functions of banks (1) payment transactions, (2) credit transactions and (3) asset management are more and more served through individual players, specialized operators or layer players. We might will not rely on one bank for everything in the future, thus the need for dual business should be taken seriously.
Change Drivers and Actors
Rumors about the merge between Credit Suisse and UBS and other recent events indicate the structural change the industry is facing. Challenger and Neo banks like e.g. Revolut are fighting with interesting digital-first offerings for clients and create pressure on retail banks. As an answer to Revolut, Credit Suisse e.g. just recently announced it’s CSX – digital bank launch. The point of sales for bank customers is shifting to online. Digital, technology-driven business models are becoming the new normal.
New Contenders
At the same time, existing and traditional western financial institutions also face new Chinese contenders. Ant Group (also known as Ant Financial or Alipay) is believed to be the most valuable Fintech. Ant Group makes astonishing usage of AI, cloud and other technologies, resulting in a fully digital consumer lending and credit approval solution among other outstanding services. Analysts argue that the upcoming IPO of Ant Group might be the world biggest IPO ever.
It is expected that the liquidity of the IPO will also be used to extend the influence in new markets, especially in Europe. J.P. Morgan on the other hand just recently sold their open source blockchain platform Quorum to ConsenSys and invested $20 million into ConsenSys, what leads to assumptions that J.P. Morgan is interested in further exploring blockchain for various use cases.
Substantial Impact
It’s a matter of fact that traditional banks, which are in nature already very digital mature, are more and more challenged by tech companies. The usage of new technologies can not only increase the customer value, it can also have a substantial social and environmental impact.
Outlook
Because we strongly believe that innovation becomes more effective in an open environment, we wrote a short thought piece together with Microsoft covering the implications of digital transformation on banking business models.
The goal of this summary is to indicate why the need for exploring new business model opportunities is relevant and how to act and accelerate the exploration of technology-driven and digital business models for financial institutions.
Interested to learn more? Download the report here.
