Banks must adapt to the reality of a macroeconomic environment that offers a number of risks and limited upside potential…. Control costs in risk, finance, legal and compliance have shot up in recent years. Additional proposals, Basel IV, are likely to include stricter capital requirements.
Meanwhile the pressures of digitisation, which boosts competition and compresses margins, are growing. Some emerging-market banks are managing well, offering innovative mobile services to customers. But our report finds that in the largest emerging markets, China and India, banks are losing ground to digital-commerce firms that have moved rapidly into banking.
In developed economies, digitisation is impacting banks in three major ways. First, regulators, who were initially more conservative about the entry of non-banks into financial services, are now gradually opening up. Over time, huge tech companies may be able to insert themselves between banks and their customers, capturing the vital customer relationship and presenting an existential threat. On the positive front, a number of banks are teaming up with fintech and digital firms, using big data and analytics to sharpen risk assessment and drive revenue growth.
Lastly, many banks have been able to digitise processes and dramatically lower costs in their middle and back offices.
From ‘Global Banking Annual Review’, McKinsey & Co
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