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If you can’t beat them, join them

As I continue to look at the 2019 Accenture Banking Trends, this month I will be focusing on the disruption of the UK banking industry. There are two key forces I will be exploring here: the rise of new market entrants – including Fintechs and challenger banks – and the growing influence from China.

Interrupting the traditional banking business model 

As Accenture warns, it’s easy to think that digital transformation in a different part of the world will not affect the UK market. But we can see China’s efforts in technology already making a global impact. Last year, two-thirds of all global mobile payment transactions were carried out via Alipay and WeChat pay. 

Ant Financial, an affiliate company of the Chinese Alibaba group and Alipay’s parent company, is now worth an impressive $150 billion. To put this into perspective, that’s more than the current value of Goldman Sachs and Morgan Stanley combined. Ahead of its valuation in April last year, Robert Kapito, BlackRock co-founder, warned that “tech companies are going to enter the financial services market in a very, very aggressive way.” He then drew parallels with how Apple has taken a lead in the music industry, and how Amazon has moved into the grocery business.

Disruption from these firms in banking is undoubtedly coming, and it’s coming fast. The only question is; how much will we see this year? Should we be expecting new players from the East to directly challenge the Western market or will there be an opportunity to collaborate with them? 

UK banks face disruption from international players just as much as from local challengers. They are both looking to evolve and change the traditional banking business model. 

Easy to underestimate 

Historically, monitoring the competition and the threat it poses has been more straightforward: measuring a firm’s success by its profitability and market share. Indeed, when new challengers entered the market in the past, they often had little effect on incumbent players in terms of profitability. But as the volume of new entrants has increased – including niche players specializing in specific business lines; and larger challenges with the ability to cross-subsidize – incumbents have started to turn their heads.

The UK banking market is the most disrupted in the world, with over 15 per cent of revenue going to new entrants. Similarly, some 52 per cent of S&P 500 companies have disappeared in the last 15 years alone, simply because they failed to react to the challenges posed by new players. Some of these companies saw the danger, but they weren’t quick enough to react. Instead of partnering with other service providers, many banks still often choose to build and maintain all aspects of their technology in-house. Moving towards flexible, cloud-based platforms that enable collaboration and fast innovation will be vital if they are to optimize and scale their business to compete with new players. Banks that fail to adapt will be left behind.

We are seeing technology-led disruption everywhere across financial services. Google Pay, Apple Pay, PayPal and others are transforming key elements of the payments space, just as the rise of P2P exchanges and lenders are re-inventing the traditional lending model. It’s only a matter of time until they make further advancements on the traditional banking model as we know it.

The last ones standing

Failing to recognize and act on the opportunities and threats posed by new players is a reckless approach. Banks must embrace the challenges and opportunities that lie ahead or risk seeing their market share ebb away as emerging challengers and ‘beasts from the East’ make their move. 




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This post is from a series of posts in the group:

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