Stay competitive in the digital age the future of banks

The latest advancement in financial technology has posed unprecedented challenges for incumbent banks. This paper analyzes the implications of these challenges on bank competitiveness and explores the factors that could support digital advancement in banks. The analysis shows that the traditionally leading role of banks in advancing financial technology has diminished in recent years, and suggests that ongoing efforts to catch up to the digital frontier could lead to a more concentrated banking industry, as smaller and less tech-savvy banks struggle to survive. Cross-country evidence has suggested that banks in high-income economies appear to have been the digital leaders, likely benefiting from a sound digital infrastructure, a strong legal and business environment, and healthy competition. Nonetheless, some digital leaders may fall behind in the coming years in adopting newer technologies due to entrenched consumer behavior favoring older technologies, less active fintech and bigtech companies, and weak bank balance sheets.

The structure of the paper is as follows. Section II introduces the definition of banks’ digital transformation, reviews the history of the digital technology, and discusses the potential implication of such transformation. Section III presents a global comparison of the usage of bank digital services. Section IV studies factors related to the global digital divide, and Section V concludes.