Morgan Stanley fintech report on disruption

Fintech companies are
disrupting the banking industry.

REUTERS/Beck
Diefenbach

• Banks need to transform themselves or they’ll be left
  in the dust by fintech upstarts, a Morgan Stanley report
  warns.
• Fintech companies raised $58 billion globally in the
  first half of 2018.
• US Banks are better positioned in comparison with banks
  in other regions.

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Banks need to transform themselves or they’ll be left in the dust
by new fintech companies, according to a new report.

With fintech companies raising $58 billion globally in the first
half of 2018, banks are feeling more pressure than ever to spend
on their own technology. This is compounded by the fact that
fintech companies don’t suffer from legacy IT systems and can
provide banking services 50% cheaper than big banks. 

“Pressure is mounting for banks to innovate and disrupt
themselves fast, before someone else ‘eats their lunch’,” 
Morgan Stanley analyst Betsy Graseck wrote in the report. 

Big banks are already stepping up their tech investments in
response. JPMorgan’s tech budget, for example, has grown to $10.8
billion in 2018, an increase of 14% over last year. 

European banks are most at risk for being disrupted, as they’ve
been burdened by negative interest rates for years and
regional regulators are more open to fintech
companies. 

US banks are better positioned, as they’ve adopted IT
innovations early, the report said.

Large banks have for years seen the value in partnering
with and investing in fin tech companies. Only 7% of banks are
developing their own technology solutions in-house. 

Big banks are dedicating their IT budgets to data
management and digital/mobile banking, while blockchain
technology is seeing less investment. 

The report concluded that banks with “best in class”
technology can better defend themselves from fintechs. These
banks include JPMorgan, Bank of America, BBVA and DBS
Bank.