BCG: “Banks Brace for a New Wave of Digital Disruption”

A recent BCG study mapped the current trends in digital banking that are expected to shape the banking ecosystem in the coming years. While briefly going over powerful forces such as advanced analytics, personalized banking and AI – the renowned consulting agency released a bold statement:  “All of that will pale in comparison with the potential disruption from digital giants”.


BCG points out the growing clout of Alipay, Amazon Pay and the recent announcement of Facebook’s Libra cryptocurrency, adding an ominous message to banks: “No one should discount the long-term disruptive threat that the digital giants pose. They have great brands, peerless AI capabilities and seemingly infinite quantities of data”.


Messaging apps were built from the ground up around user experience. They are extremely sticky, and already radically changed the way we get our news, consume media, interact with each other and shop for stuff. The ubiquity of social apps, their popularity across wide age groups and the growing time spent on this media add to their potential for disrupting the personal finance market.


In regard to this threat, BCG also mentions Big Tech’s deep knowledge of its users, stating that no bank knows its customers better than Facebook or understands their shopping habits better than Amazon.


“If the digital giants are going to invade the banks’ turf, the banks must start to act more like digital giants”, claims the report. “Almost all banks will need to speed their move into the digital future. If they don’t, they risk being boxed into a set of risky, capital-intensive, and low-return businesses, while digital giants snare the most attractive businesses for themselves”.


In an article covering BCG’s forecast, The Financial Brand states that “the biggest disruption of the banking industry is yet to come, with the largest tech firms being in the best position to impact legacy banks of all sizes”.


And what about traditional banks that think that they’re big enough to withstand any new tech offering? BCG sends them a clear wakeup call: “It’s easy to ignore a new wave of disruption forming at a distance but impossible to navigate through it once it is upon you. Banks that are not preparing now will pay a price later on”.


BCG lists a series of actions that banks should take to better position themselves for the emerging threat from Big Tech alternative finance. One key takeaway is creating a seamless customer experience – a painful point for most banks, particularly in comparison to slick social apps. “The future of a digital bank requires that the entire customer journey be seamless no matter what path the consumer wants to take”, sums The Financial Brand. How can such customer experience be delivered? “In many cases, the best avenue for quick transformation will be through strategic investment and partnerships with smaller fintech firms or maybe even one or more tech giants.”


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