26 March 2017
visit nextgenbanking.co.uk

Banks face big profit loss to digitisation - McKinsey

16 January 2017  |  22438 views  |  0 cash

European banks stand to lose half their profits from digital disruption trends shaking the banking industry, according to a report from McKinsey.

In a study entitled 'A Brave New World for Global Banking', McKinsey says banks in Europe and the United Kingdom currently have $35 billion, or 31%, of profits at risk.

"More severe digital disruption could further cut their profits from $110 billion today to $50 billion in 2020, and slice returns on equity in half to 1 to 2 percent by 2020, even after some mitigation efforts," the report states.

The pressures of digitisation, which boosts competition and compresses margins, are being felt in the fee-paying business of banks all around the world. Some emerging-market banks are managing well, states McKinsey, offering innovative mobile services to customers. But the report finds that in the largest emerging markets, China and India, banks are losing ground to digital-commerce firms that have moved rapidly into banking.

In developed economies, non-bank competitors are being given a leg-up by regulators, shedding their natural conservatism and opening up the market to new entrants.

"Over time, huge tech companies may be able to insert themselves between banks and their customers, capturing the vital customer relationship and presenting an existential threat," states McKinsey.

To meet the challenge, banks must reorient their business models to the customer and the new digital environment by establishing the bank as a platform for data analytics, and aggressively linking up with fintech startups, platform providers, and other banks to share costs through industry utilities. They also need to streamline their operating models and IT structure and move toward a proactive regulatory strategy.

From an organisational perspective, banks in general need to move beyond traditional restructuring and renew the bank via new technological capabilities, McKinsey states.

"Any new business model that banks design will likely require new technology and data skills, a different form of organisation to support the frenetic pace of innovation, and shared vision and values across the organisation to motivate, support, and enable this profound transformation."

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

Blockchain impact timeline speeds up, massive cost savings forecast

Blockchain impact timeline speeds up, massive cost savings forecast

13 January 2017  |  15936 views  |  0 comments | 40 tweets | 39 linkedin
Fintech startups bedding deeper into the banking value chain - McKinsey

Fintech startups bedding deeper into the banking value chain - McKinsey

15 November 2016  |  19987 views  |  0 comments | 53 tweets | 47 linkedin
Digital finance could create 95 million new jobs in emerging economies - McKinsey

Digital finance could create 95 million new jobs in emerging economies - McKinsey

22 September 2016  |  7813 views  |  1 comments | 25 tweets | 28 linkedin
Banks face choice to collaborate or compete as fintech disruption hots up

Banks face choice to collaborate or compete as fintech disruption hots up

30 September 2015  |  14853 views  |  2 comments | 46 tweets | 51 linkedin
Banks should focus digital investments on back office - McKinsey

Banks should focus digital investments on back office - McKinsey

09 December 2014  |  13235 views  |  3 comments | 22 tweets | 27 linkedin

Related blogs

Create a blog about this story (membership required)
visit abe-eba.euVisit capgemini.com

Top topics

Most viewed Most shared
French retailer Carrefour launches online bank accountFrench retailer Carrefour launches online...
57367 views comments | 16 tweets | 36 linkedin
European Commission opens public consultation on fintechEuropean Commission opens public consultat...
9713 views comments | 43 tweets | 26 linkedin
Can banks really win in the payments business of the future? – new Finextra reportCan banks really win in the payments busin...
8941 views comments | 23 tweets | 37 linkedin
MAS to roll out national KYC utility for SingaporeMAS to roll out national KYC utility for S...
7935 views comments | 19 tweets | 28 linkedin
SecureKey taps IBM to put identity on the blockchainSecureKey taps IBM to put identity on the...
7378 views comments | 22 tweets | 15 linkedin

Featured job

Six Figure Base + Commission + Stock Options
London

Find your next job