The ABCs of digital disruption in finance

Cape Town - The question for banks today is how to become "digital banking superstars" and not go the way of the dinosaurs, according to a Citi GPS report on FinTech.

"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," the report states.

"For an incumbent bank to become a bank of the future and not remain stuck in the past, it must look not only at new technologies such as artificial intelligence, machine learning and other forms of automation, but it must also look to overhaul its operational systems and technology systems."

The new report identifies what Citi believes are the ABCs of digital disruption in finance, namely artificial intelligence; big tech; core banking and cloud; and digital assets.

It also identifies ways that incumbent banks can adopt or embrace these disruptive factors and drive their businesses forward.

For an incumbent bank to evolve into the new landscape it would require senior leadership teams to be focused on digital transformation; a relatively simpler business mix by geography and products; and the cushion of better existing financial returns that allow management to divert its attention from "near-term firefighting".

In a previous Citi GPS report on FinTech, entitled Digital Disruption: How FinTech is Forcing Banking to a Tipping Point, Citi compared the amount of investment in FinTech and the uptake of product in China and the West.

It 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 the second report, entitled Digital Disruption Revisited: What FinTech vs Investments Tell Us About a Changing Industry, Citi took a harder look at China and the huge influx of global FinTech venture capital investments that were feeding the Chinese FinTech "dragons" and analysed how these "dragons" were able to rise under unique circumstances.

Citi noticed at the time that FinTech investments in the US, although slow compared to China, were seeing a shift away from lending and towards InsurTech, RegTech, and Blockchain.

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