This week S&P Global published the Global Banks Midyear report for 2018. While credit conditions remain relatively good, the trade dispute, largely with China, is causing concern. Beyond the overall good economic environment there is a pressing issue when it comes to traditional banks. The fact they are not moving fast enough to their inevitable digital future.
According to S&P;
“We expect the banking industry to continue to face increasing disruption from technological innovation. Regulations alone won’t protect banks’ market positions.”
The traditional banking sector has long been encumbered by regulation and oversight that can be extreme at times. But today, the banking sector is less critical of the regulatory environment as it has become a significant moat which to slow the invading Fintech hordes seeking to undermine and disrupt what was once an unassailable realm.
S&P calls out PSD2 (Payment Services Directive) in Europe as putting more pressure on the beleaugered banks, along with new forms of payments and cryptocurrencies (which intrinsicly includes blockchain).
“We therefore expect growing investments in technology, with a likely lag until banks reap some efficiency gains. Subdued revenue prospects for many banks accentuate the need for cost-saving initiatives,” states S&P – a comment that is euphemistic for shutting down brick and mortar locations and lowering headcount.
“Competition of tech titans in the area of e-wallets is a case in point. They could leverage their strong customer bases and networks to potentially constrain banks’ payment services revenues.”
Yep. That means bit tech may be better positioned to provide financial services. As the saying goes, we need financial services but we do not really need banks that much.
Add to this the fact that becoming more digital and mobile friendly will mean additional cyber risk and the need to upgrade from Cobol green screens.
It’s not all bad though, blockchain, if incorporated correctly, “could strengthen conventional operations, notably for money transfers and financial market infrastructure companies.”