Management SummaryStern Stewart Research // Volume 63

“Silicon Valley is coming,” warns Jamie Dimon, CEO of J. P. Morgan. In the wake of PayPal and Lending Club, thousands of new FinTechs have shot out of the ground, and they don’t limit themselves to payment transactions anymore; they are competing directly with the core business of traditional banks. Several factors contribute to this development: exponentially growing capital inflows, the large number and wide range of business models, the market-readiness and spread of the social, mobile, analytics, cybersecurity/Cloud technologies and, not least of all, the vulnerability of the traditional banks. Banks run the risk of losing earnings and the control over the client relationships to these new competitors, in particular when it comes to high-margin products. To combat this trend, most banks have launched “digital transformation” programs in the magnitude of six to ten percent of their discretionary investments. To date, many of these programs are made up of individual measures that are branded as “digital”, but a transformation agenda should contain immediate measures based on a clear understanding of the opportunities and risk potential, and at the same time formulate a goal for what the envisaged business model in the New Banking Economy should look like.

1. The situation: Traditional banks are still occupied with the after-effects of the financial crisis 2. The new challenge: FinTechs are on the rise – what is it that makes them such a force to be reckoned with? 3. The reaction of the banks: They delegate innovation to IT and organizational silos 4. The solutions: Banks should exploit the opportunities that have arisen and develop a target vision for their business model 5. The future: Alongside FinTechs, we see three further bank models prevalent in the long term Final thought: Captive Finance 4.0 – the reintegration of the financial and real economies?