Banking and Financial Markets

Global industry agenda


Banking and Financial Markets institutions
with the insights to understand the future
will be the ones who shape it.

To truly delight their customers, financial organizations have to radically transform their core operations and technology by building and participating in digital industry ecosystems, networks and platforms. This creates dynamic, agile cognitive operational functionality and delivers security-rich, scalable industry infrastructure to support robust, large data-driven workloads.

How can banking and financial markets industry leaders seize opportunities today to win tomorrow?

Disruptive forces

Powerful global forces outside the control of any one company are compelling rapid change for customers, banks, and financial markets.


Digital technologies

Redefining possibilities in the banking and financial markets industry, digital technologies will compound disruption and have hyper-exponential impact.


AI icon

Artificial intelligence and analytics

AI icon

Artificial intelligence and analytics

  • Enables people and machines working together and tapping the structured/unstructured data essential to personalized engagement and services
  • Manages complex and value-added services for mass markets

Mobile icon

Mobile

Mobile icon

Mobile

  • Enables transactions and insights on the move
  • Acts as a catalyst for reaching the unbanked and rapid process re-engineering

RegTech icon

Regulatory technology

RegTech icon

Regulatory technology

  • Combines data, technology innovations and new methodologies for regulatory compliance and augmentation of compliance teams
  • Digitizes manual processes, uncovers hidden threats and helps generate viable insights from data

Cloud icon

Cloud

Cloud icon

Cloud

  • Enables flexibility and scalability with infrastructure costs and efficiencies
  • Increases agility and innovation in data governance and supports a broad range of business transformation and growth

Blockchain icon

Blockchain

Blockchain icon

Blockchain

  • Modernizes near real-time trust, insight and transparency to all parties in many key business processes, including clearing and settlement, payments, trade finance and syndicated loan functions
  • Accelerates identity governance and management capabilities

Cybersecurity icon

Cybersecurity

Cybersecurity icon

Cybersecurity

  • Improves ongoing intelligence-gathering capabilities
  • Enhances defense, resilience and trust through robust governance

Emerging consequences

Each manifestation of disruptive forces has the ability to shape a new future, and affect the customer, the enterprise and the market.


Number 1 graphic

Customer impacts

Relationships shifting to other providers more closely aligned with expectations and value chains

Relationships shifting to other providers more closely aligned with expectations and value chains


  • Financial services must be integrated into customer activities, and customers want to monitor and access their capital anywhere and anyhow
    In developed Asian markets, digital banking transactions are now 5 times as frequent as branch transactions. 12

  • Customers demand a lifestyle experience that goes beyond the traditional products-based experience to encompass radically new approaches to financial services
    56% of the global mass affluent consumers report more loyalty to brands that resonate with their personalities, but only 37% of consumers who are members of financial loyalty programs say those programs offer rewards reflective of their lifestyle 13

  • Customers are willing to consider products from nontraditional providers that are viewed as more innovative than banks
    53% of millennials say their own bank is offering nothing different from other banks. 73% would be more excited about new financial offerings from participants such as Google or Apple than from their own bank 14

Number 3 graphic

Enterprise impacts

High structural costs associated with existing business and operations models

High structural costs associated with existing business and operations models


  • Banks face increasing costs for compliance activities and severe penalties for noncompliance
    Fines associated with General Data Protection Regulation (GDPR) are predicted to reach EUR 4.662 billion in its first three years18

  • The global banking industry’s ROE has stagnated, falling below return on capital
    At 8.6% for 2016, ROE was down a full percentage point from 2015; the trend for the global banking industry has been a slowdown in revenue growth19

Number 5 graphic

Market impacts

Disruption from new digital platform competitors has emerged – leveraging cloud computing, cognitive computing, artificial intelligence, automation and blockchain

Disruption from new digital platform competitors has emerged – leveraging cloud computing, cognitive computing, artificial intelligence, automation and blockchain


  • Banks are engaging in collaborative partner ecosystems to build new capabilities and specialized offerings
    Tencent’s popular “WeChat Pay” mobile payment app is estimated to have been used by 97.3% of WeChat users under 18 years old in 201723

  • Platform-based competitors are introducing alternative payment rails and lending, as well as automated investments – breaking up traditional sources of value for full service banks
    To further strengthen its portfolio of financial services, online shopping platform Rakuten plans to purchase Asahi Fire & Marine Insurance Co., Ltd. for about USD 415 million24

  • Traditional banks have been largely subsuming smaller disruptors and employing them as quasi-innovation labs
    Deutsche Bank, Axis Bank, Standard Chartered Bank, Emirates NBD and United Overseas Bank, among others, have well-established fintech incubators and startup accelerators25

Number 2 graphic

Security breaches and fraud are accelerating and eroding customer trust

Security breaches and fraud are accelerating and eroding customer trust


  • The cost of data breaches is growing rapidly, with financial services facing costs significantly higher than other industries
    The average cost of a data breach has jumped 29% since 2013, and the total now exceeds USD 4 million 15
  • Customer trust in financial services has eroded rapidly
    The financial services sector was the least trusted of all sectors globally, with only a 54% trust rating from survey participants 16
  • Greater disaggregation requires data and cognitive computing to provide deeper and more personalized services to the customer overall, not specifically as a banking customer
    Only 16% of customers report being both financially savvy (understanding products) and digitally savvy (confident using digital channels), and 59% need to speak with someone to obtain advice or purchase a new product 17
Number 4 graphic

The scale and skills of the existing workforce are not aligned with new business requirements

The scale and skills of the existing workforce are not aligned with new business requirements


  • Banks need agile leadership to cope with rapidly increasing business and organizational change due to technological disruption
    78% of banking executives either strongly agree or agree their work is going to change considerably over the next 3-5 years due to digital business trends 20
    A lack of skilled resources and technical expertise (60%) and a lack of data governance and policies (45%) were cited as the leading barriers to implementing cognitive technologies in banks 21

  • Banks also need flexibility in leadership to empower the right people to make decisions and manage risks in emerging ecosystems
    More than half of banking executives are diffident about making decisions about cost reduction and operations 22

Number 6 graphic

Lower ROEs will result in less capital available to drive transformation and innovation initiatives

Lower ROEs will result in less capital available to drive transformation and innovation initiatives


  • The banking industry is creating very little value
    From 2010 to 2016, the industry reported between 8% and 10% ROE, below what most consider the industry’s cost of equity (COE) 26

  • Global banking revenue growth is slowing and will continue to slow as digital technology increases pressure on traditional sources of income
    Revenue growth slowed to 3% between 2015 and 2016, a rate half that of the previous five years 27

  • Banks have to focus on radical structural cost reduction
    Banks continue to simplify operations, seek scale efficiencies and rationalize their branch networks
    In the first half of 2017, 869 bank branches were closed, the largest decline in more than two decades
    28

Pressing challenges

Acknowledge and act upon industry challenges
in the near term to stay competitive.


How to become more valuable and relevant to customers in emerging ecosystems


Learn more

How to become more valuable and relevant to customers in emerging ecosystems


  • As of September 2018, financial services and banking, with net promoter scores (NPS) of 49 and 36 respectively, lag behind other industries 29

  • Customers expect an increasing level of personalization

  • Service quality lags below expectations and customers seek alternatives

  • Engagement in transaction cost control is needed to remain competitive

How to radically and structurally reduce costs and improve capital efficiency


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How to radically and structurally reduce costs and improve capital efficiency


  • In 2016, the Industrial and Commercial Bank of China (ICBC) reduced their cost/income (C/I) ratio to 27.38% while realizing a return on assets (ROA) of 1.51% 30

  • Working agile can lower costs rapidly and improve flexibility

  • Traditional risk management and human resources models are no longer effective

  • Flexible cost models must support business changes and data-driven workloads

How to deploy
next generation infrastructure and applications that are security-rich and compliance-friendly

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How to deploy next generation infrastructure and applications that are security-rich and compliance-friendly


  • New distribution models emerge that overcome the limits of legacy travel distribution

  • Providers that depend on legacy systems will face higher distribution costs

Transformational opportunities

Technology-enabled opportunities empower your organization to address pressing challenges and compete in the marketplace.


Embrace market platforms and ecosystems

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Embrace market platforms and ecosystems


Enable customer-centric ecosystems, providing more relevant and expansive services beyond banking with innovative pricing models

Build out and participate in emerging platforms and ecosystems with partners that offer true differentiation in both functionality and cost

Deploy modular compliant cognitive operations and operating platforms

Learn more

Deploy modular compliant cognitive operations and operating platforms


Drive monolithic-to-modular end-to-end digital transformation to improve flexibility and structurally reduce costs

Deploy cognitive tools to deliver security-rich, compliant, no-touch operations

Source operational functionality and services in a marketplace of internal and external providers in anything-as-a-service (XaaS) consumption models

Transform and migrate legacy to help protect
cloud-based platforms

Learn more

Transform and migrate legacy to help protect cloud-based platforms


Transform and migrate legacy infrastructure and applications to hybrid cloud structures

Embed security-rich capabilities, with a cognitive core of security orchestration and analytics

Start here to assess your readiness for
the future

Critical question 1

Build, collaborate and participate

  • Are you collaborating with the right partners and establishing the right networks that can benefit all?
  • Do all partners understand the key requirements for building, operating and co-owning the network?

Critical question 2

Lower cost of cognitive operations

  • Are you increasing customer-centricity without dramatically increasing costs or compliance risks?
  • Are you driving cost reduction radically enough in areas beyond simple cost income ratios?
  • Are you designing your cognitive operational functionality to be smarter?

Critical question 3

Scale and protect infrastructure

  • Is your infrastructure security-rich and capable of handling flexible workloads?
  • Is your organization prepared to support new approaches to infrastructure, such as multi-cloud, and new technologies, such as artificial intelligence, to enhance strategy?

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