Nonbanks are changing the rules of digital banking, leading many to question the relevance of retail banks. The days of bank bashing should end. Few nonbanks have sustainable business models, and banking CIOs can take advantage of this situation.
Digital firms and nonbank startups are leading to the irrelevance and demise of retail banks, according to many nonbank executives, the media and others. They argue that:
- Most bank branches will disappear.
- A high percentage of bank revenue is in play.
- Banks are not defending their core business.
Their conclusion is that retail banking is practically dead, or will be soon.
It is true that nonbanks are changing the rules of the financial services game (Gartner clients see “Nonbanks Are Changing the Rules of Digital Banking” ). However, we disagree with the negative outlook on retail banking. One of the many problems with arguments that predict the demise of retail banking is that few nonbanks have sustainable business models. There is a saying in football/soccer that if you want to make £1 million on a team, start with £10 million. This phenomenon is also true of many nonbanks. Many nonbanks have business models that are focused on moving to a zero-cost economy, or at least undercutting costs.
Many of these same nonbanks, however, are struggling with revenue and net income (Gartner clients see “Retail Banking is Not Dead Yet“).
Just because many new competitors are stumbling does not mean that CIOs should relax and continue enabling traditional banking in a business-as-usual way. Digital firms that have become involved in banking are innovating at a rapid pace. This pressure provides banking CIOs to acquire talent from nonbanks and gain approval for more aggressive architecture, core banking, branch and other transformations.