Bank of the Future
The ABCs of Digital Disruption in Finance
At the end of 2017, when typically the most asked questions include ‘Are you going to the company holiday party?’ and ‘What present am I going to get Uncle Billy this year?’, one question seemed to dominate: ‘Do you think I should buy Bitcoin?’ Without most people knowing what it was, it was suddenly something you were afraid to miss out on. That’s how fast FinTech and disruption can come at you.
In our first Citi GPS report on FinTech, Digital Disruption: How FinTech is Forcing Banking to a Tipping Point, we compared the amount of investment in FinTech and the uptake of product in China and the West. We found that Internet giants had moved into financial services and gained considerable market share in e-commerce and third-party payments in China, while only 1% of North American consumer banking revenues had migrated to new digital models. China was found to be past the tipping point with FinTech companies having a similar number of clients as major banks but North America and Europe were just coming up to the tipping point with rising revenue impact from digital disruption.
One year later, in our second report Digital Disruption Revisited: What FinTech VC Investments Tell Us About a Changing Industry, we took a harder look at China and the huge influx of global FinTech Venture Capital investments that were feeding the Chinese FinTech dragons and analyzed how these dragons were able to rise under unique circumstances. We did notice at the time that FinTech investments in the U.S., although slow vs. China, were seeing a shift away from lending and towards InsurTech, RegTech, and Blockchain.
Fast forward one more year, and the question for banks today is how do they become Digital Banking Superstars versus going the way of the dinosaurs. The future of finance is an ever increasingly converged ecosystem where consumer and small and medium enterprise (SME) financial services are provided by banks and by platform companies with roots in e-commerce and social media. For an incumbent bank to become a Bank of the Future and not remain stuck in the past, they must look not only at new technologies such as artificial intelligence, machine learning, and other forms of automation, but they must also look to overhaul their operational systems and technology systems.
This new report identifies what we believe are the ABC’s of digital disruption in finance — Artificial Intelligence, Big Tech, Core Banking & Cloud, and Digital Assets — and identifies ways that incumbent banks can adopt/embrace these disruptive factors and drive their businesses forward.
For an incumbent bank to evolve into the new landscape will require (1) senior leadership teams to be focused on digital transformation; (2) relatively simpler business mix by geography and products; and (3) the cushion of better existing financial returns that allows management to divert their attention from near-term firefighting.
We also take the opportunity talk to a range of different FinTech players to get their views on everything from the potential use-cases in AI and the biggest challenges traditional financial institutions face with AI to what are the problems banks face with legacy systems and what makes emerging markets so exciting for FinTech.
Authors: Ronit Ghose,Kaiwan Master,Andrew Coombs,Keith Horowitz, CFA,Josh Levin, CFA,Judy Zhang,Erkin Adylov,Henri Arslanian,Azeem Azhar,Zennon Kapron,Jonathan Larsen,Urszula McCormack,Aditya Menon,David Nangle,Ravi Shankar,