McKinsey warns banks that fintech startups and alternative finance pose threat to traditional banking's profits

Clara Guibourg
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The UK's fintech scene is booming (Source: Getty)

McKinsey has warned banks that fintech startups are a threat to traditional banking’s profits, giving them a choice: fight them or join them.

London’s fintech hubs are booming, with over 12,000 startups disrupting financial services with products that are often cheaper for customers. This poses a real threat to banks' profits, according to a report from McKinsey.

Between 20 and 60 per cent of banks’ profits are at risk, by falling margins as much as market share lost to the new competition, the report suggests.

Traditional banks must now choose whether to try to change their ways in an effort to do battle with the newcomers, or simply join them and collaborate more with startups, analysts write in the report:

The window for making this choice is narrowing. Banks must decide soon, probably within three years, or the choice will be made for them.

This isn’t the first time banks have been warned to keep up or be left behind. Credit experts were recently polled about alternative finance lending, and 75 per cent agreed P2P posed a threat to traditional banking.

Read more: P2P is transforming business lending - here's how

Jonathan Crook, director of the Credit Research Centre at the University of Edinburgh Business School, said:

Traditional banks need to adapt to keep up with this new, nimble market – and fast. In a market where a small difference to an interest rate can make all the difference in attracting a good customer’s business, banks that don’t push ahead with technological advancements in the way that newer challengers are could really begin to suffer.

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