Banks Should Invest in Machine Learning Tools and Artificial Intelligence – McKinsey


Up to a third of the world’s banks are not equipped to survive an economic downturn and must re-invent their business models to compete in a digital age, according to a report by consultancy McKinsey.

With 60% of banks currently making returns below their cost of equity, the industry is in a fragile position, McKinsey’s consultants believe, lacking the financial strength to compete effectively in a market characterised by prolonged low interest rates.

“Nearly 35% of banks globally are both sub-scale and suffer from operating in unfavourable markets,” the report says. “Their business models are flawed, and the sense of urgency is acute. To survive a downturn, merging with similar banks may be the only option if a full reinvention is not feasible.”

Banks are entering the the last pit stop in this current economic cycle, the report states: “Imaginative institutions are likely to come out leaders in the next cycle. Others risk becoming footnotes to history.”

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To survive, banks should invest in machine learning tools and artificial intelligence to drive down costs and improve front-facing customer services to beat off threats from new market entrants in Big Tech and fintech.

Astute investments in M&A will be a pre-requisite in the search for new revenue and in preparation for further digital disruption in the coming years, the report concludes.