Banks Face Losing $150 Billion to Startups, Oliver Wyman Says

  • Three year dividend freeze could pay for technology investment
  • Cost saving from upgrades may total $340 billion, report says

The world’s largest banks and insurers could lose as much as $150 billion of revenue to financial-technology startups, in a shift that could force lenders to freeze dividend payments for up to three years, according to Oliver Wyman. 

The cost of upgrading IT systems to adapt to growing competition could exceed $4 billion at each bank, compared with the $1.7 billion average dividend payout of the 100 largest lenders, according to a report by the consulting firm. Potential cost savings from such investment across the industry could total $340 billion.

Financial technology startups are seeking to win a slice of the $5.7 trillion global banking and insurance market from firms, under pressure to upgrade computer systems in the wake of tougher regulatory scrutiny and increasing cyber-security threats. Companies such as LendingClub Corp. and Funding Circle Ltd. are bypassing banks to directly match borrowers with individuals who want to fund them, providing so-called peer-to-peer loans.

“The way customers buy financial services and how firms deliver them is going to be transformed,” Ted Moynihan, Oliver Wyman’s managing partner for financial services said in a statement. The banking and insurance industries are becoming “modular,” whereby companies employ more third-party suppliers and customers use multiple product providers, according to the report. The study didn’t identify individual companies.

Wall Street’s future will be dominated by firms that embrace technology from electronic fixed-income trading to blockchain and predictive algorithms, reducing the need to employ as many people, according to McKinsey & Co. Investment banks that successfully adopt automated trading and other measures can increase profit by 30 percent, the consulting firm has said.

— With assistance by Edward Robinson

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