Digitalization Will Make Most Heritage Financial Firms Irrelevant by 2030
By 2030, 80 percent of heritage financial services firms will go out of business, become commoditized or exist only formally but not competing effectively, according to Gartner. These firms will struggle for relevance 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.
David Furlonger, vice president and distinguished analyst at Gartner said banks face a growing risk of failure if they continue to maintain 20th century business and operating models. “Digital transformation is largely a myth as institutional mindsets, processes and structures stand firm,” said Furlonger. “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.”
Emerging technologies (such as blockchain) offer transformational opportunities by creating trust between parties that do not know each other, without intermediary relationships that incumbent financial firms cultivate. Equally, peer-to-peer consensus algorithms can directly match borrowers to those with money, without requiring a bank to mediate. According to Gartner, of the 20 percent of traditional firms that will remain as winners, three types will flourish.
Companies that own a digital platform will use its scale, low-cost infrastructure and the customer information it generates to create new services and enter new markets. Very few (5 percent) of these winning heritage institutions have the ability to become power-law firms.
Individual companies or pure-play/neobank subsidiaries will disaggregate traditional financial services in discrete product areas. They will participate in digital platforms, but will not own them. Less than 15 percent of the winning group of traditional firms can convert themselves into or successfully spin off fintechs.
The dramatically lower costs enabled by digital platforms will allow some traditional providers to act as service brokers. This is likely for large populations of poor and working-class people around the world that were not profitable customers previously. Simultaneously, they can act as concierge providers of bundled offerings to high-net-worth individuals. Around 80 percent of winning traditional financial services providers can become long-tail firms.