NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, February 18, 2015

Banks have three to five years to get their digital act together before they enter a spiral of decline, according to a paper by McKinsey & Company. This view was echoed by BBVA chairman and CEO Francisco Gonzalez, who told media and analysts at the announcement of BBVA’s latest results that up to half the world’s banks could slip through the cracks as digital transformation takes hold.

Their predictions follow analysis by Deutsche Bank in the UK last year, pointing to massive declines in the number of branches in that market within the decade.

The new threats won’t just be small startups, but huge operators like Alibaba and Apple who can bring the benefits of both insurgency and incumbency to bear.

In their report, called “Strategic choices for banks in the Digital Age”, McKinsey & Company authors Hank Broeders and Somesh Khanna say the need to act is urgent and acute since the industry is undergoing a period of rapid innovation and border transformation.

The gap between winners and losers will be profound, according to the McKinsey analysis. On the upside, those banks that adapt well could experience a 40 per cent improvement on the bottom line. The digital laggards, however, will lose almost that much from their net profits.

Leaders in the field have rebuilt core systems, upgraded their various digital channels and, just as importantly, adapted their habits and culture.