Non tech-savvy banks will be obsolete by 2025: NIEIR

by AB09 Aug 2013

Australian lenders who fail to embrace an innovative approach to banking technology will be effectively obsolete by 2025, according to research published yesterday by the National Institute of Economic and Industry Research (NIEIR).

A model developed by the group was used to predict trends for two types of banks: one with technological innovation placed high on its priority list and one deemed a ‘follower’.

The model predicts the leader's revenues will more than double, from $15b to $32b, while the follower enjoys much slower growth, from $12b to $17 billion by 2025.

NIEIR founder and executive director, Peter Brain, says there are six technology ‘mega-trends’ which are impacting all businesses: high speed broadband, cloud computing, big data and analytics, mobility, interface and collaboration technologies, and intelligent systems, sensors and robots.

"Nowhere is the application of these mega-trends more evident than in the finance sector," says Brain.

When it comes to banks, he says the competition comes not only from nimbler local lenders but from global digital groups offering alternative financial services, such as peer-to-peer lending, digital wallets and new payment technologies.

"The most dangerous threats are likely to emerge from other sectors, in the form of airlines, utilities and supermarkets... offering more financial services."

The NIEIR model forecasts that technology and innovation will cause a fall in fee income generated by financial institutions of 3.8% a year on average between now and 2025, prompting a total re-think of the way a bank earns money.

"While the position of financial institutions is often protected by regulation and laws can slow the speed of change, it is conceivable that some fees will move towards zero,” says the report. “Instead, organisations would earn income by collecting, analysing and re-selling data relating to transactions rather than the transactions themselves."