A digital crack in banking’s business model


Digital advancements in the financial world are challenging traditional retail banking methods. Historically, these banks mixed services like financing, investing, and transactions to serve their customers’ diverse needs. Their strong customer relationships let them earn from areas like investment, credit card fees, or currency exchanges, while also offering basic services like low-cost checking accounts. FinTech and big tech firms from various industries can exploit gaps in the traditional banking model. Due to tech advances and evolving consumer habits, these new players can weaken the strong hold banks have on customers. They aren’t trying to replace banks entirely but offer more user-friendly and specific services. For example, they allow easy account setups on digital platforms.

Cost-conscious customer groups like the underbanked, small businesses, and millennials greatly appreciate the benefits of digital services in the growing fintech world. Alipay, a Chinese payment service from Alibaba, transforms online finance by gamifying savings and allowing users to compare their returns with others. Additionally, they make online transfers fun by adding voice messages and emoticons. Many successful fintech companies, both in corporate and retail banking, are choosing “coopetition” by partnering with traditional banks. Instead of handling basic banking functions themselves, these fintechs use established banks for services like loan processing or handling credit-card payments. Because they operate mainly through software without costs like physical branches, they can offer services at a lower cost. Using advanced data analytics, they can also innovate in areas like credit-scoring and utilize social media to understand changes in customer behavior.


Digital advancements are reshaping the financial sector, challenging traditional banking methods. Banks used to combine various services, benefiting from strong customer relationships. However, FinTech and tech companies are now filling the gaps in traditional banking, offering specialized digital services that prioritize user needs, such as easy account creation. Groups like the underbanked, small businesses, and millennials are especially attracted to these digital offerings. Innovations, like Alipay’s engaging savings features, showcase this new, customer-focused approach. Interestingly, many fintech firms collaborate with traditional banks, using their existing infrastructure to save on costs. These firms also harness data analytics and social media insights to stay ahead of changing customer preferences.

Dietz, Miklos, et al. “A Digital Crack in Banking’s Business Model.” McKinsey & Company, McKinsey & Company, 22 Apr. 2016, www.mckinsey.com/industries/financial-services/our-insights/a-digital-crack-in-bankings-business-model.