Threats and Opportunities

Three forces are shaping the future of banking today. Technology innovation is the first. For most traditional banks and credit unions, technology innovation is left to third-party firms—either established core providers or startup companies that package and resell mixtures of products and services. Little true innovation—the kind that challenges existing business models and creates new sources of value—takes place within financial institutions themselves. But allowing non-traditional firms from the technology, retail, and telecom sectors to drive change disrupts the dominance of traditional financial institutions.

Demographics is the second force shaping the future. Millennials account for 25% of the U.S. population—80 million and growing, according to the U.S. Chamber of Commerce. And in five short years, they will be outspending the Baby Boomers. As products of the Great Recession, Millennials tend to save more of their income than previous generations, and to defer substantial purchases much longer. Furthermore, they are no longer just consumers, but producers. Mark Zuckerberg, for example, was born in 1984 and is an archetypal Millennial. If existing financial institutions can’t find a way to appeal to this generation, someone else will. 

Third, the emergence of new business models third force is driving change, propelled by both Millennial demands and communication preferences, and the constant velocity of technology inventions.

The combination of these forces represents an existential threat to traditional financial institutions that is explored in this report.

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