McKinsey: Banks in the last pit-stop to revamp business models

McKinsey: Banks in the last pit-stop to revamp business models

Up to a third of the world's banks are not equipped to survive an economic downturn and must re-invent their business models to compete in a digital age, according to a report by consultancy McKinsey.

With 60% of banks currently making returns below their cost of equity, the industry is in a fragile position, McKinsey's consultants believe, lacking the financial strength to compete effectively in a market characterised by prolonged low interest rates.

“Nearly 35% of banks globally are both sub-scale and suffer from operating in unfavourable markets,” the report says. “Their business models are flawed, and the sense of urgency is acute. To survive a downturn, merging with similar banks may be the only option if a full reinvention is not feasible.”

Banks are entering the the last pit stop in this current economic cycle, the report states: "Imaginative institutions are likely to come out leaders in the next cycle. Others risk becoming footnotes to history.”

To survive, banks should invest in machine learning tools and artificial intelligence to drive down costs and improve front-facing customer services to beat off threats from new market entrants in Big Tech and fintech.

Astute investments in M&A will be a pre-requisite in the search for new revenue and in preparation for further digital disruption in the coming years, the report concludes.

Comments: (6)

A Finextra member
A Finextra member 22 October, 2019, 11:452 likes 2 likes

Source please? 

A Finextra member
A Finextra member 22 October, 2019, 16:53Be the first to give this comment the thumbs up 0 likes

McKinsey were the organisation that told AT&T that there was no future in mobile telephony in 1987, so they eventually went out of business (AT&T today is the rebranded Southern Bell who bought the AT&T name for a song). Impossible to believe anything said by McKinsey since.

Philip Andreae
Philip Andreae - PA&A - Sea Island, Ga 23 October, 2019, 13:591 like 1 like

BAnks do need to consider the future and figure out what a bank in 2050 will look like.  They must understand what they do now and how they effectively operate, re-engineering clearly to reduce cost and improve performance.  They need to appreciate the threats ahead, such as continued challanges to the profitable Interchange model.  Banks must understand what teh people want and figure out how to effectively deliver.

Rik Coeckelbergs
Rik Coeckelbergs - The Banking Scene - Brussels 23 October, 2019, 19:10Be the first to give this comment the thumbs up 0 likes

@Philip Andreae, 2050 is very ambitious isn't it? When quantum computing, 5G and other truly new technology will rise up between here and 2025, even predicting 2030 is going to be hard. 

 

But OK, not impossible either of course. They have smart people to do so.

Philip Andreae
Philip Andreae - PA&A - Sea Island, Ga 23 October, 2019, 20:22Be the first to give this comment the thumbs up 0 likes

my mistake 2030 makes more sense.

 

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