Kathmandu. The world’s finance sector is changing very fast. This threatens the existence of traditional banks. Old-fashioned banks are finding it increasingly difficult to compete with new and fast-moving finance companies.
According to the Boston Consulting Group (BCG), income in the finance sector is increasing, but old banks are struggling to save their share. “Income from financial services is increasing, but banks are not getting their fair share,” the report said, adding that the money is now moving to companies like fintech, private credit funds, non-bank liquidity providers and digital banks. That is, companies using technology to make the work of finance easier are moving forward. ’
What is the cause?
The report also noted that online assets such as digital assets i.e. cryptocurrencies are growing very fast. This could bring about a big change in the financial sector, but most banks are still far from it. Fast-growing companies specialize in using digital technology. Digital banks have grown at the rate of 85-100 percent in the last five years.
Private credit companies and retail trading platforms are also growing rapidly. In comparison, the income of old banks has increased by only 10-15 percent. Yet they have the most wealth. “The reason why new-age companies are at the forefront is that they have a large platform, their costs are low and they work digitally,” the BCG report said. Companies using technology properly are growing rapidly. ’
Impact on capital markets
This change is not limited to retail finance. Even in the capital market, small advisory companies and non-bank market makers are hampering the income of old banks. Especially in countries like the US, private credit is reducing the share of banks, the report said. At the same time, banks are also struggling with problems that have been going on for many years.
Their fee income is declining. Non-interest income is also declining and expenses are increasing. Despite investing in technology for many years, the pace of improvement in their operations has slowed down.
Bcg noted that many banks are struggling to meet these challenges. The expenditure of new banks is one-tenth of that of the old ones. New competitors are doing well at a lower cost. Investors have also felt this change.
Investors
Shares of most banks in East Asia and the Euro region are being sold below their book price. Investors are running away from banks that are operating in the old way and have low earnings. Investors fear that these banks may fall further behind. “So banks will now have to focus on working in a new way and using technology. Otherwise, they will fall behind,” the report suggested.
