“We believe we’re in the late economic cycle and banks need to make bold moves now because they are not in great shape,” Kausik Rajgopal, a senior partner at McKinsey, told Bloomberg. “In the late cycle, nobody can afford to rest on their laurels.”
Revenues across the global banking industry have stalled and are not keeping up with expenses, the research consultancy reported in its review released on Monday (Oct. 21). It advises that financial institutions should turn to outsourcing and technology before the economy slows down.
FinTech startups and tech giants are bringing new competition and banks risk “becoming footnotes to history” as regulations ease, making it easier for companies to offer financial services. Amazon in the U.S. and Ping An in China are just two examples of tech companies capturing traditional banking customers, the report indicated.
Whereas FinTechs earmark 70 percent of budgets to advancements, legacy banks set aside only 35 percent. Newer FIs are also more likely to offer credit cards and other big revenue products.
Rajgopal also told Bloomberg that financial institutions “need to get much more comfortable with external partnerships and being able to leverage talent externally.”
Mergers and acquisitions will continue, Rajgopal said, and it’s a smart way for banks to lower expenses and innovate with new technology.
McKinsey’s research confirms that scale in banking will correlate to stronger returns.
As more startups penetrate the $1.5 trillion global payments market with free services, banks could lose as much as $280 billion in revenue by 2025. Financial institutions currently control the international payments sector — anticipated to reach $2 trillion globally by 2025 — but startups will continue to crowd the market, taking 15 percent of banks’ revenues, Accenture said in its own report on the topic.
In addition to Accenture’s research, 240 bank executives across 22 countries were surveyed about their plans to capitalize on digital disruption.