Platforms challenge FS profits

A new report from management consultancy McKinsey has suggested that the traditional banking sector may be the next to face the ‘Amazon effect‘, as international platform companies such as Alibaba, Rakuten and Amazon expand into the distribution side of banking.

The e-commerce giants no longer confine themselves to the territory of selling products – they are managing customer assets, lending money, processing payments, issuing credit cards and hailing rides. Offering a huge range of goods and services through a single access gateway, the platforms offer a clear advantage for consumers.

McKinsey argues that the size of these platform players make them a far greater digital competitor for traditional lenders than smaller fintech firms. In the face of such a growing threat, it’s clear that the banking industry’s fundamental advantages are consumer trust and exclusive access to valuable customer data.

If they were to utilise this data and move to a more digital environment, following in the direction of the platforms, banks could increase their return on equity closer to 10%, McKinsey estimates. The question is - how will banks develop these platform capabilities, and will they be open to the idea of partnering with platform firms?