Most banks will be made irrelevant by 2030 - Gartner

Most banks will be made irrelevant by 2030 - Gartner

Within 12 years time, 80% of financial firms will either go out of business or be rendered irrelevant by new competition, changing customer behaviour and advancements in technology, according to forecasts by Gartner.

Gartner bills the rump as 'heritage financial firms', existing only formally but not competing effectively, as global digital platforms, fintech companies and other nontraditional players gain greater market share, using technology to change the economics and business models of the industry.

David Furlonger, vice president and distinguished analyst at Gartner says banks face an alarming risk of failure if they continue to maintain 20th century business and operating models.

“Digital transformation is largely a myth as institutional mindsets, processes and structures stand firm,” he says. “Established financial services providers will have to move faster on digital business by building digital platforms or finding niche products and services to sell on others’ platforms.”

Furlonger points to Gartner’s 2018 CEO survey, noting that while financial services CEOs continue to prioritise revenue growth, there has been a clear shift toward emphasising efficiency and productivity improvements and the importance of management as growth levers. This shift indicates that digital business is predominantly a channel and transaction automation play, he suggest, focused on business optimisation as opposed to a transformation.

According to Gartner, of the 20% of traditional firms that will remain as winners, three types will flourish:
  • Power-law firms: Companies that own a digital platform will use its scale, low-cost infrastructure and the customer information it generates to create new services and enter new markets. Very few (5 percent) of these winning heritage institutions have the ability to become power-law firms.
  • Fintechs: Individual companies or pure-play/neobank subsidiaries will disaggregate traditional financial services in discrete product areas. They will participate in digital platforms, but will not own them. Less than 15% of the winning group of traditional firms can convert themselves into or successfully spin off fintechs.
  • Long-tail firms: The dramatically lower costs enabled by digital platforms will allow some traditional providers to act as service brokers. This is likely for large populations of poor and working-class people around the world that were not profitable customers previously. Simultaneously, they can act as concierge providers of bundled offerings to high-net-worth individuals. Around 80% of winning traditional financial services providers can become long-tail firms.
Pete Redshaw, practice vice president at Gartner, says: “The future of the financial services industry is increasingly weightless, requiring few physical assets to establish or maintain a presence. That makes the industry especially vulnerable to disruption by digital competitors.”

The speed of digital transformation in financial services partly depends on regulation, he says, as well as customer demographics and behaviors, which will vary from country to country. In some nations, conservative regulations will inhibit innovation, while other countries, such as Australia, Brazil, China, India and the UK, will use regulation to speed transformation.

Comments: (10)

A Finextra member
A Finextra member 29 October, 2018, 12:292 likes 2 likes

An interesting view. I think it boils down to definitions. Originally, banks were companies where people and businesses held their money (deposits as part of retail banking) and companies that provided funding (via loans, listing, M&A etc as part of commercial banking). Banks were not big playes in payments when the process was cash-centric.

Where will we keep money in the future. Most likely at the same place the money comes from in the first place - Central Banks. Think of digital fiat. The rest as per Gartner report. 

Philip Andreae
Philip Andreae - PA&A - Sea Island, Ga 29 October, 2018, 18:11Be the first to give this comment the thumbs up 0 likes

I have the same question.  Where will we keep our money? 

Clearly we should expect it to work better for us.  Yet, are we willing to the do the work, do we have the capability to figure out how to make our money work for us? 

What is a bank?  There role needs to be better understood and we need to be clear as to why do they exist.  Clearly new entrants with a better value proposition can push existing players aside.  I think custodian, security (Vault), trust, effective monetary transfers on my behalf, loan money, what else and why do these things go away? 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 29 October, 2018, 18:302 likes 2 likes

I think Gartner is just politely saying that, with the accelerating pace of automation, humans won't have much money left by 2030!!!

Jokes apart, Bill Gates confidently declared that "banks are dinosaurs" in 1994. Since then, bank operating revenue has tripled, earnings have quadrupled, equity capital has quintupled, and profits have hit a record high of $50B in 1Q2018. 

Let's see what happens with another confident declaration by another famous entity.

Philip Andreae
Philip Andreae - PA&A - Sea Island, Ga 29 October, 2018, 19:29Be the first to give this comment the thumbs up 0 likes

I remember when Mr Gates made the Dinosaur comment.  The response by the then chairman of Carte Bancaire wnet something along the lines of thanking Mr Gates for the comparison - dinosours lives for more than 65 million years, We will too.

Duane Tough
Duane Tough - PBATM - ny 30 October, 2018, 01:39Be the first to give this comment the thumbs up 0 likes

A good attention getter as Gartners releveancy is in question to thier ability to delivery 'value' for their fees....

Fi's will always morph and change to customer demand, democracy dictates a trusted third party to complete a transaction.....but nice read guys :-)

Philippe Guenet
Philippe Guenet - Henko - PURLEY 30 October, 2018, 09:41Be the first to give this comment the thumbs up 0 likes

Interesting article which can be seen coming indeed when you look at APIs strategies. Everybody is worrying for when a big player like Amazon will be entering the scene with great fanfare. I don't think disruption will happen like this.

With APIs, customers are likely to do banking as part of their lifestyle, which let's face it, is already occupied by internet giants. This will disintermediate and force banks into commodities (low margins / compliance functions / etc). Survival in this space will be on efficiencies and size. So consolidation and clean IT (and if you have worked on bank systems, you'll see the challenge...). Internet giants will do the client relationship and drive a hard bargain. Margins will be on their side.

Most are trying to give a fight into services, user experience, innovation, agile, etc. But the culture will never cut it unless they think radically about their organisation (splitting startup units and creating a Utility).

Internet giants will provide the platform ecosystem, Start-ups will take some of the business, bit by bit on top. It is already happening with FX, investments, loans, Credit cards, Payments, etc. In this mix, banks are a sitting duck to become a Commodity/Utility unless they make some really bold moves very quickly.

 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 30 October, 2018, 10:01Be the first to give this comment the thumbs up 0 likes

@Philip Andreae: LOL. Teaches people to be careful of the metaphors they select!

Andrei Charniauski
Andrei Charniauski - Finastra - London 30 October, 2018, 10:19Be the first to give this comment the thumbs up 0 likes

Or not! :)

Stanley Epstein
Stanley Epstein - Citadel Advantage Ltd - Modiin 01 November, 2018, 08:52Be the first to give this comment the thumbs up 0 likes

Really? I think not. Too much is placed on "technology", and well lets face it the tech being applied to banking is simply wooden. One or two real innovators out thre will hit the jackpot and that yet unknown innovation may change it all. 2030? Much the same as 2018.

 

Philip Andreae
Philip Andreae - PA&A - Sea Island, Ga 01 November, 2018, 17:03Be the first to give this comment the thumbs up 0 likes

The question of the future of banking is less about the technology and more about the regulatory environment and the mechanisms (deposits) that will be used to create the assets (loans), that create the classic revenue stream of a bank.  Could enterprises e.g. GAFMA with large cash reserves, decide to become a Bank, sure, why not.  This is exactly how many Financial Institutions were formed, think Community Bank or Credit Union.  Will municipal, county, state or federal entities becomes Banks, is another potential scenario.

The underbanked, those that are now having to borrow at extortionate rates need to be better served.  Infrastrucuture projects need reasonable long term means of financing.

Banking is a broad term.  Yes there are things banks do others might be able to do as well.  Clear, there shall be competition. 

 

What we need to remember is that there are things banks do now that deserve the regulatory oversight and there are operations and services where these institutions should be held accountable to certain social responsibilities.

If FinTech companies want to pl;ay then sure they can easily decide to become a Financial Institution with all of the related responsibilities.  And, yes, some of the regulatory barriers need to be removed and others inserted.

 

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