Traditional financial services firms face extinction within 12 years

In 12 years’ time, 80% of the traditional financial services firms existing today will either disappear or become shells of their current standing if they continue as they are.

According to research by Gartner, some will go out of business or become commoditised, while others will exist but be uncompetitive because of the rise of financial technology (fintech).

Gartner said fintechs, as well as other companies entering the financial services sector, mean the business models and economics of the finance sector is changing.

David Furlonger, analyst at Gartner, said banks could be doomed if they persist with outdated business models. He added that although banks talk about digital transformation and are adopting fintech, they are still rooted in the past.

“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 other platforms.”

Current strategies around fintech at traditional financial services firms are focused on new service channels rather than transforming business models.

“While financial services CEOs continue to prioritise revenue growth, there has been a clear shift toward emphasising efficiency and productivity improvements and the importance of management as growth levers,” said Furlonger. “This shift indicates that digital business is predominantly a channel and transaction automation play, focused on business optimisation as opposed to a transformation.”

According to Pete Redshaw, practice vice-president at Gartner, the biggest mistake financial services CIOs make is 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,” he said.

The threats are broad with new fintechs emerging in the traditional banking and payments sector, companies offering insurance through digitally enabled business models (known as insurtechs), and regtech firms changing how finance firms meet compliance regulation.