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A few talking points last week, but two hit me in particular. The first is a McKinsey report that reckons half of the world’s banks are not viable. Their cost of equity is higher than their return on equity. Should another downturn hit … well, they’re gone.
“Every bank is uniquely bound by both the strength of its franchise and the constraints of its markets or business model … their business models are flawed, and the sense of urgency is acute. To survive a downturn, merging with similar banks or selling to a stronger buyer with a complementary footprint may be the only options if reinvention is not feasible.”
As a guy who talks endlessly about the banking business model being broken, last century, not fit for the digital age and overwhelmingly cost inefficient, this does not surprise me.
McKinsey note that “risk costs are lower than ever, and yet 60 percent of banks destroy value”. This has been true for a long time but, in today’s world of tight margins and global meltdown, is acutely true. That’s why Commerzbank and Deutsche Bank look so embarrassingly bad at present … as do many other big names.
Read a good summary of the report over here at Bitcoin.com … of all places.
But that report was hit shortly after with another that states 15 percent of payments revenue – $82 billion – will be taken by new FinTech firms away from banks in the next three years … and that’s just in the USA. Accenture’s ‘5 Big Bets in Retail Payments in North America’ report highlights these trends and Madhvi Mavadiya provides a nice summary over on Forbes.
I’ve seen so many reports talking about disruption, transformation, do-or-die, lost revenues, potential wipeouts and more. It’s all a noise. However, it’s a noise banks really do, finally, have to listen to. You can ignore me, ignore consultants, tell McKinsey to take a long walk off a short pier and respond to research as hokum and puff … but I can tell you one thing that is true. It’s not coming from me or consultants. It’s coming from your brothers and sisters in other banks. It’s coming from your predecessors and successors. It’s coming from everyone in the industry and outside the industry. The message is this:
IF YOU DO NOT CHANGE YOUR BUSINESS, YOUR BUSINESS MODEL, YOUR MINDSET, YOUR CULTURE, YOUR INSTITUTION AND ALL THAT IS IN IT TO EMBRACE DIGITALISATION … YOU ARE DEADOK, maybe it is a do-or-die moment. Oh … and if you want to know what to do … read my books. They’re full of business model strategies to embrace digitalisation for banks that accept they have to change. Just saying. Related: What’s the Latest on #Brexit in Banking Then?