By 2030, only 20% of heritage financial services will stay in business 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.
Speaking at the Gartner Symposium/ITxpo 2018, in Australia, today, David Furlonger, vice president and analyst at Gartner, warned how banks face a growing risk of failure if they continue to maintain 20th-century business and operating models.
He said: “Digital transformation is largely a myth as institutional mindsets, processes and structures stand firm.
“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.”
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According to Gartner’s 2018 CEO survey, while CEOs from financial services firms tend to prioritise revenue growth, there’s been a definite shift toward emphasising efficiency and productivity improvements and the importance of management as growth levers. This shift suggests that digital business is predominantly a channel and transaction automation play, focused on business optimisation as opposed to a transformation.
Pete Redshaw, practice vice president at Gartner, said this attitude is dangerous.
He said: “It underestimates the degree of change that digital technology will bring to the industry.
“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 biggest mistake financial services CIOs make is putting too much focus on technology.
“They should push their organisations for a more coherent response to digital business — it’s important to set the digital vision and destination first, then think about how to lead an organization there.”
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Who will the winners be?
According to Gartner, of the 20% of traditional firms that will remain as winners, three types will flourish:
- Power-law firms: These are firms that own a digital platform. Only five per cent of these winning heritage institutions can become power-law firms
- Fintechs: Individual companies or pure-play/neobank subsidiaries will disaggregate traditional financial services in discrete product areas.
- Long-tail firms: The dramatically lower costs enabled by digital platforms will allow some traditional providers to act as service brokers.