Banks’ solution to challengers could be ineffective

Author: Olly Jackson | Published: 11 Mar 2019

Amid greater competition from challenger firms, conventional banks need to adapt if they are to cope. However, the chosen option could be counter-productive, market sources told IFLR.

Stronger merger control regulations mean that traditional banks must be inventive if they are to deal with new threats. As such many are currently favouring investments in small tech and fintech companies. Yet in doing so, they run the risk of their balance sheets swelling, as well as any number of operational issues.

"Banks must focus on investing in fintech to improve their business models," said a corporate development head at a major fintech company. "This is much easier than going through the integration process as a way to grow their business."

HSBC’s simplification initiative after the financial crisis aimed to shrink its balance sheet, which had grown by five times since the 1990s. All in all, this saved the bank $4.7 billion by...