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Banks: Time to Ramp Up the Tech, Say Analysts

February 20, 2024         By: Steven Anderson

Those who fail to keep up with the rapid pace of technology change will likely end up flattened by it. Though that’s easier said than done these days; some technology actually changes in the time it takes to learn it, creating a vicious cycle of learning and obsolescence.

For banks, it’s no different, and a new report from Boston Consulting Group says banks need to step up their understanding and use of current technology.

Banks have been doing a solid job of keeping up, the report notes, thanks to a variety of partnerships and collaborative efforts. That’s not enough, says Boston Consulting, whose report detailed that standard, traditional banks need a much more rapid and pronounced overhaul to their technological profiles to remain viable.

The report cites “…the hazards of clinging to traditional credit-centric revenue models and static, inflexible operating practices” as some of the biggest problems, and offered some disturbing pictures of banking as we know it today. Not even a third of corporate banking divisions in North America and Asia could generate “positive and growing economic profit”, and less than half of European banks could say likewise.

Of course, there was some good news, particularly in that European units saw improvements in overall profitability in the 2013 – 2015 corridor, and this despite a declining economy worldwide. However, the report also made clear that technology was a massive destabilizing factor, one that could be either opportunity or disaster afoot.

We’ve seen entire online-only banks come out in the last few months, and we’ve seen regular brick-and-mortar banks struggle to get mobile payments in place. There’s a clear disparity here in terms of technological prowess, and it’s a safe bet that that gap will grow wider before it closes. Banks have been able to trade on reputation and name recognition for some time now, but that may not be enough to hold forever in the face of improving innovation.

As a general protective measure, banks should indeed be pulling toward better technological capabilities, just to prevent them from going the way of retail stores when online shopping first opened up. Few brick-and-mortar businesses are exceptions to this potential problem, and banks don’t look much like one of those exceptions these days.