McKinsey Quarterly

Decoding financial-technology innovation

| Article

The next wave of the financial-technology revolution that started only a few years ago has arrived, and this time the impact will be broader. The earlier wave mostly hit payment transactions, which was an easy area to disrupt but represents only 6 percent of global banking-revenue pools.

We mapped those pools, across various products and business lines, against our database of over 1,200 financial-technology innovations. By conducting a deeper analysis of more than 350 of them, we found that start-ups are targeting the more lucrative retail-banking segment, which accounts for 52 percent of total industry revenues. The exhibit shows that the two biggest priorities outside payment transactions are retail lending (which has revenues twice as large as payment transactions does across all segments) and retail savings and investments (with 15 percent of global revenues). Start-ups in these areas are using peer-to-peer solutions, social technologies, and advanced data analytics to develop products, manage risk, and improve service. These firms are also beginning to target small to midsize enterprises—mostly in payment transactions, with some advances in credit and risk scoring as well. They are mostly staying away from large corporations and institutions for the time being.

Banks should be monitoring innovations from five types of players: business-model disruptors, process innovators, technology start-ups outside the financial sector, digital banks, and platform attackers from other industries, such as e-tailing. Some of these innovations might radically reinvent banking; many can improve how banks currently do business. Decoding this landscape will be essential for them.

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