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Gray swans that could disrupt banking

What kind of events might trigger truly rapid changes in the traditional banking model?

Helps financial services companies and other organizations harness digital technology and stay ahead of emerging trends

Lari Hamalainen

Leads McKinsey’s Helsinki office and our Advanced Analytics (AI) work in Benelux and the Nordic region, while advising companies across sectors on how to adapt their strategies and drive transformative change enabled by new technologies and ways of working

Serves banks in EEMEA on a wide range of strategic and operational topics helping them be better prepared for the challenges that they are facing in a new world of digital ecosystems

Leads Marketing and Sales in EEMA and helps companies across the region embrace ecosystem play, as well as design-centric way of doing business

Digitization, mobile technology, advanced analytics, artificial intelligence, ecosystems . . . the list of innovations changing the way banks operate could go on for pages. Despite this confluence of catalysts, the traditional banking business model remains stubbornly in place. A banker from the 1970s transported to today’s world might be shocked and impressed to see people opening their accounts with tiny cordless “phones,” but she would still recognize the way the bank earns its returns. Things don’t move very quickly in the world of banking.

Which makes us wonder what kind of events or scenarios might trigger a dramatic shock to the banking industry. We’re not talking about economic scenarios or potential downturns—instead we’re looking at low-likelihood, high structural impact events. Think of them as “gray swans”—not quite as rare as the “black swans” introduced by Nassim Nicholas Taleb in 2001,[1] but still unlikely as individual events. Here are five to start the discussion:

1. A big tech player goes all in on banking

Scenario: A big tech company launches a highly scalable bank offering, individualized for millions of customers across all major banking segments, with a cost base dramatically lower than the industry average. Customers quickly adopt the platform as the starting point for all bank-service searches and stop going to banks to “shop” for those services. With their direct connection with customers severed, a few banks become white-label platforms; others are hit from both sides: they are disintermediated and outmatched on price.

This gray swan may be the most likely of the group, given consumers’ desire for convenience, their deep, daily relationships with technology giants, and the huge asset pools and profits at stake. Distribution is not a barrier for these companies, to say the least. Moreover, big tech platforms could keep client acquisition costs low and apply big data analytics to address the banking needs of these customers. Big tech firms also enjoy a level of brand loyalty and marginal costs most banks would envy. If these companies were to pick off the most lucrative market segments—say, payments, consumer finance, investments—they could force banks into areas of the business with huge costs and slim margins.

Signs that this breakthrough is becoming more likely:

  • Amazon hiring nearly 5,000 bankers as it explores credit card and checking account partnerships with several US banks
  • Goldman Sachs collaborating with Apple in the credit card business[2]
  • Facebook announcing the launch of a cryptocurrency in partnerships with a number of big banks and other organizations.
  • Big tech companies in China are already dominant in payments and leaders in product categories such as consumer lending, SME loans, and money market funds

2. An extreme geopolitical event

Scenario: Protectionism and isolationism take hold and major economies become increasingly less connected. Global trade slows as do financial flows. In some emerging markets, banks are nationalized. As a result, global supply chains are broken, the global payments infrastructure is severely disrupted, funding costs move sharply higher and defaults begin to rise.

We are not describing a normal economic cycle or typical geopolitical maneuvering; we are contemplating the kind of crisis that happens only every 40 or 50 years. World GDP today is multipolar, with significant growth coming from outside traditional liberal economies. Long-term rivalries are brewing and could manifest in unpredictable ways. This would create a completely new reality for banks: value chains disrupted, legal environments uncertain, governments forcing banks to underwrite loans, trade moving to barter, and more non-bank financing.

Signs of acceleration:

  • The OECD continues to forecast slower economic growth
  • The US-China trade war could become entrenched and disruptive
  • The precise outcome of Brexit is still unclear and its economic effects unknown
  • Escalating tensions are raising the chances of military conflict in several places across the globe
  • The Bulletin of the Atomic Scientists, which sets the Doomsday clock, cited nuclear weapons and climate change as two existential risks

3. The apocalyptic cyber-attack

Scenario: One morning all the customers of a large global bank wake to find their bank accounts empty and are unable to conduct payment transactions. Panic ensues, infecting other banks as people worry where the next cyber-attack will hit, bringing the whole payments system of a major economy to a standstill. Illiquidity paralyzes the market. Deposit insurance schemes are overwhelmed and trust in banks is destroyed.

Today, significant cyber-attacks have become almost routine and the public takes them mostly in stride. However, the big attacks so far have been mostly about stealing information, not actual money. How would the public react to financial losses? Most jurisdictions have state deposit protection; however, if “low insurance” countries or wealth management havens suffered losses the domino effect could have major political and regulatory consequences.

Signs of acceleration:

  • The rising number of cyber-security incidents and the volume of money stolen
  • As older, wealthier people move online they could be more vulnerable than younger, less wealthy “digital natives”
  • The pressure to rapidly deploy digital solutions to keep up with customer demand may make it more difficult for banks to manage the risks inherent in new technology

4. A “good bank” moves the goalpost

Scenario: A small but vocal group of customers and shareholders in a developed country push banks to act more socially and environmentally responsible. This message gets reinforced by media and becomes a major PR and political issue. Banks are forced (explicitly or implicitly) by customer and investor expectations and social media pressure to change their purpose, reporting, products and economic model. A few catastrophic events linked to climate change increase the pressure. Banks that respond first to these demands gain an advantage as others struggle to follow suit.

Millennials and Gen Z, in particular, tend to prefer doing business with institutions that bring transparency and socially conscious business practices to a new level. For these younger consumers, just being a provider of financial services and keeping a low media and social profile is not good enough.

Signs of acceleration: /p>

  • More board-level discussions and CEO interest in banks taking a stance on environmental and social issues
  • Climate change is accelerating demands that businesses take action
  • Millennials are now the largest generation in the workforce and a substantial part of banks’ customer bases; along with Gen Z, Millennials will form the largest voting bloc in 2020
  • “Triple Balance Sheet” institutions—those that focus on people, planet, and profits—are on the rise

5. New regulations supercharge customer churn

Scenario: Open banking hits a tipping point, giving all banks access to each other’s customer information. As banks lose their grip on the client base, competition for customers (both from traditional and new sources) skyrockets and churn rises dramatically. Unable to raise prices and with customer acquisition costs increasing, bank ROEs decline. Many incumbents are stuck with expensive branch networks in the least lucrative segments of the market. Any of the four other scenarios mentioned above can trigger regulator action leading to even stronger regulatory spiral.

Regulators in many jurisdictions want to level the playing field for incumbents and newcomers. The EU in particular is determined to promote open banking and put customers in charge of their data. This could break up banks’ data monopolies and create new data sharing models.

Signs of acceleration:

  • EU has open banking initiatives underway and is considering broader ones, including regulations on big data platforms, and “unbundling” the data monopoly of the banks
  • Both traditional banks and new players are announcing open banking plans
  • Growing customer protection and privacy concerns.

Although it’s difficult to pick which of these five scenarios is likely to emerge, there’s a high probability at least one will. At the very least, banks need to monitor these potential scenarios and develop some conditional responses. In subsequent pieces, we will further investigate these five scenarios, their implications and how banks should react.


[1] Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, Nassim Nicholas Taleb, Random House, 2001.

[2] “Apple, Goldman Sachs Team Up on Credit Card Paired With iPhone,” The Wall Street Journal, February 21, 2019.