Banks using 20th century operating models will face a growing risk of failure while power-law firms, Fin-techs and long-tail firms will remain winners
Gartner, a research and advisory company said that non digitalised financial firms will start struggling for relevance by 2013. The research company has also claimed that 80 per cent of heritage financial service firms will be commoditised or will go out of business by the same year.
A press release issued by the company says that fin-tech companies and other non-traditional players, using technology to change the economics and business models of the industry, will gain greater market shares.
David Furlonger, vice president and analyst at Gartner, 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.”
He specifically pointed out that banks using 20th century operating models will face a growing risk of failure.
Too much focus of technology
Pete Redshaw, practice vice president at Gartner, underling the importance of coherent responses to digital business said, “The biggest mistake financial services CIOs make is putting too much focus on technology. They should push their organizations 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.”
Mr Redshaw has pointed out that the attitude of focusing on business optimisation as opposed to its transformation is dangerous. He mentioned, “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 threat from emerging technologies
The non digitalised firms will also face dangers from emerging technologies like blockchain as these have already started offering transformation opportunities by creating trust between parties that do not know each other. The fact that such transactions do not require any intermediary relationships that incumbent financial firms usually cultivate, makes them friendlier.
Gartner also mentioned that “peer-to-peer consensus algorithms can directly match borrowers to those with money, without requiring a bank to mediate.”
Power-law firms, Fin-techs and Long-tail firms make-up for the rest 20 per cent that will remain winners.
Digital transformation speed in financial services depends partly upon regulation in a country and partly upon customer behaviour and demographics. Gartner says that countries like India, China, Australia, Brazil and the U.K., will use regulation to speed transformation.