Digitalization will make 80 percent of traditional banks and financial services firms irrelevant by 2030, according to a new Gartner report
Digital transformation is well underway and is being heralded as an opportunity and necessity for firms in all industries to maintain a competitive edge. But Gartner says heritage firms in the financial sector are struggling to cope with disruptive fintechs like P2P lenders, and are underestimating the impact of new technologies like blockchain.
The findings come on the back of Gartner’s 2018 CEO survey, which canvassed CEO opinion across all industries. Gartner says the survey found traditional financial firms’ have worrying attitudes towards new technologies.
A chief concern is that traditional financial CEOs are electing to optimise existing business efficiency and productivity instead of fully embracing transformation and modernising their business models.
According to Gartner, only 20 percent of traditional firms will remain as “winners”.
David Furlonger, vice president at Gartner, said time is of the essence if these firms are to avoid fading into irrelevance.
“Digital transformation is largely a myth as institutional mindsets, processes and structures stand firm,” he said.
“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.”
Perhaps the biggest disruptor to traditional models is blockchain technology. Much has been made of how the interparty trust blockchain cultivates eschews the relevance of intermediaries that bloat incumbent financial firms.
In addition, peer-to-peer consensus algorithms can directly match borrowers to those with money, without requiring a bank to mediate.
By focusing on optimisation, Gartner’s findings reveal that trad-firms simply haven’t acknowledged the logical and transformative implications of the technology.
However, Gartner vice president Pete Redshaw said CIOs are guilty of putting ‘too much focus on technology’.
“They should push their organisations 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 organisation there.”
Of the 20 percent of firms that will remain relevant, Gartner says three types — power-law firms (those that own a digital platform), fintechs, and long-tail firms (service brokers) — will flourish.
Senthil Ravindran, EVP and global head of xLabs at Virtusa, leads a team that helps financial firms adapt to the changes digitalization brings. He says banks and financial institutions need to act fast and do more.
“Emerging disruptive tech – such as AI/machine learning, robotics, AR/VR and blockchain – are building on the foundations laid by technologies like mobile and cloud, and beginning to change legacy banking models,” he said.
“We are seeing early adopters even amongst the large, established banks build new business models around these technologies. Banks should also be looking to form collaborations with fintechs and banking startups that have the expertise in technology, but less experience of financial services.”