Rather than wiping out traditional banks, the fintech phenomenon will lead to the creation of digital financial superstores as the world's leading banks hoover up the most promising ideas and firms and transform into technology companies, according to an analysis by Greenwich Associates.
Forced to act by the threat from non-bank entrants and the creation of new tech-driven business models, the banking industry will undergo a major transformational shift over the course of the next decade, the report forecasts.
“These pressures are pushing banks inexorably toward a new model,” says Don Raftery, Greenwich Associates MD and author of the report. “Today banks feel analog in an increasingly digital world. Within the next decade, the leading banks will feel and operate more like tech companies with banking licenses.”
That new model will take shape by, if not before, 2025, when the industry arrives in what Greenwich Associates dubs 'The Age of the Digital Banking Superstore'.
Stripped of their technology advantage and, most likely their regulatory advantage, nonbanks will cede clients and share of wallet to the banks, the paper contends, and customers will rediscover the benefits of one-stop shopping with large banks.
Raftery forecasts that many major fintech and nonbank providers will be acquired by banks in the coming years, further accelerating banks’ technology prowess.
Regional banks will struggle to keep up with mounting costs of IT investments, he says, while small and community banks attempt to take advantage of white-labeled technology from third-party providers to maintain their relevance.
Says Raftery: “Even in more developed and heavily regulated markets like the US and Europe, virtually the only thing standing between banks and giants like Google and the telecom providers will be a banking license."
Indeed, the recent report from the UK's Competition and Markets Authority, far from stripping the big banks of their powers, is instead pushing them to adapt to a changing market that is being redefined by API-driven technology innovation. In pushing for market reforms, the UK's scores of challenger banks may ultimately find that they have succeeded only in awakening the industry's big beasts from their slumbers.