Föhrenbergkreis Finanzwirtschaft

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Technology Will Help—And Hurt—Bank Results, Studies Say

Posted by hkarner - 20. Januar 2017

Date: 19-01-2017
Source: The Wall Street Journal

Fees, consumer banking and lending could drop by more than 10% in the U.S. by 2020, but new tech is also a way to avoid future profit collapses

One new study argues that up to $45 billion of bank profits could be wiped out by 2020 thanks to encroaching automation.

Some banks may be turning big profits this quarter. But they will have to spend a lot of money in a gamble to stay profitable as technology encroaches, according to new set of studies.

McKinsey & Co., in a report this week, argues that up to $45 billion of bank profits could be wiped out by 2020 thanks to encroaching automation, ranging from electronic trading to mobile banking.
Fees charged for payments like checks and wires, wealth advisory and management, and consumer banking and lending could each drop by more than 10% in the U.S. in that time, and more than 20% in the U.K. and Japan, McKinsey says.

But new technology is also one way to avoid future profit collapses, another study said this week.

Accenture PLC, in a new report, estimates that banks could save $8 billion a year by using the shared databases known as blockchains, which were invented as a way to track ownership of bitcoin among a network of individual computers.

Accenture says the costs can come out of the $30 billion annually spent on trading data, trading compliance and operations.

McKinsey, in a study presented earlier in January to the U.S. Treasury, estimated that across all of financial services, using blockchain in its pure form could save as much as $110 billion annually globally, with half of that coming from the expense of cross-border money transfers.

The problem banks face is that they have to commit to spend money up front, against still-theoretical benefits. Already, banks will directly spend about $130 million in 2016 on blockchain technology, McKinsey said. That could reach $400 million in two years.

More broadly, the World Economic Forum, which sponsors this week’s Davos meetings, said that banks are spending an average of $15 million a year on artificial intelligence—more than double what the average company in other sectors does in a year, according to figures from Infosys, an outsourcing services firm.

The bottom line, according to McKinsey, is that banks will continue to struggle to cover their cost of capital, which is roughly 10%. McKinsey projects that year-end 2016 data released by global banks in coming weeks will show a return-on-equity similar to 2015, when it was 9.6%.

What that suggests is that despite banks’ mostly increasing profits, they are still doing less with shareholders’ money than they did in the past.


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