Digitisation move ‘worth $350bn to global banks’
Written by Chris Lemmon
New research from McKinsey predicts that the digitisation of operations could add $350 billion to the banking sector’s bottom line, while also warning that financial institutions should be wary of serious competition from ‘platform’ companies such as Alibaba and Amazon.
The study suggests that banks cannot afford to wait any longer to extract the potential of digital to industrialise their operations. In order to compete effectively, the report states, banks must begin to explore the new tools at their disposal and build the necessary skills in digital marketing and analytics. This could lift the average bank’s return on equity (ROE) by around 2.5 percentage points, according to the report.
Failure to do so will open the door to the new heavyweight competitors – platform companies. The report says that companies such as Alibaba, Amazon and Tencent are “staking a claim to banks’ customers and the revenues and profits they represent”. Such platform companies are proving to be an even greater challenge to the retail banking market than the rise of FinTech – the threat of which is now cooling, according to the study.
By creating a customer-centric, unified value proposition that extends beyond what users could previously obtain, platform companies are bridging various industries to create “ecosystems” that reduce customers’ costs, increase convenience, and provide them with new banking experiences. The research notes that these firms have access to exceptional data, and worryingly for banks, they are often more central in the customer journeys that include big financial decisions.
McKinsey highlighted the example of Japan’s Rakuten Ichiba – the country’s largest online retail marketplace – as a case in point. The firm provides loyalty points and e-money usable at thousands of stores, both online and offline. It issues credit cards to millions of members and offers financial products and services that range from mortgages to securities brokerage. The report argues that companies such as this are blurring traditional industry boundaries, with a superior customer experience that means they can sell an ever-wider range of products to their customers.