Publication

“When I go to Silicon Valley … they all want to eat our lunch. Every single one of them is going to try.”

—Jamie Dimon, Chairman and CEO of JPMorgan Chase

The debate about the potential digital disruption of retail banking is an old one. In 1991, a study of the industry concluded that information technology (IT) in banking was creating value for consumers, but by intensifying competition and lowering barriers to entry, technology was destroying value for banks. In 1994, Bill Gates referred to banks as “dinosaurs” and noted that people tended to overestimate the speed of digital transformation and to underestimate its ultimate impact. More recent stories announce “The Rise of the Digital Bank”: Francisco Gonzalez, Chairman and CEO of BBVA, predicts that the next 20 years will see the world go from 20,000 “analogue” banks to no more than several dozen “digital” institutions. 

It is arguable that banks have long been at the forefront of integrating digital technologies into their businesses. As a BGLN director asserted last year, “Banks are the largest information companies in the world.” The Economist estimates that in 2013, banks spent $180 billion on IT. But digital technology has not yet transformed banking the way it has other industries, and banks have a reputation for being conservative and slow to innovate, especially in a world with increased regulatory constraints and a host of legacy issues still being addressed. According to one director, banks’ “systems and processes look to be from the last century, or certainly from the last decade.” At the same time, an executive noted, “Banking has changed a lot: we have 24/7 banking, we can bank globally at any time online or via mobile apps. There has probably been more change than the industry gets credit for.”

Over the first half of 2014, BGLN participants discussed the challenges and opportunities of digitization in banking, including two meetings, one on June 3, 2014 in New York and one on June 17, 2014 in London. Regulators, directors, and executives all concluded that digital transformation is now one of the most critical strategic issues for bank leaders. The competitive landscape could also be transformed by non-bank entrants, raising important questions for banks and regulators. The following key themes emerged and are expanded upon in this ViewPoints, as are three questions for bank board consideration:

• Digitization will truly transform banking

• Improving efficiency and effectiveness of processes and information technology is essential

• Bank leaders need to press for innovation and experimentation

• Regulation needs to keep pace with the rate of change