McKinsey’s 2017 Annual Report on global banking. “Remaking the bank for an ecosystem world” contains a thorough review of the state of global banking which they report “shows many signs of renewed health. The recovery from the financial crisis is—at long last—complete, capital stocks have been replenished, and banks have taken an ax to costs. Yet profits remain elusive.”

This is the rub, the vulnerability of the whole system, and combined with this “the rise of nonbanking platform companies targeting the most profitable parts of the banking value chain.”

Platform companies attacking the profitable bits

The problem is that the nonbanks are focusing on origination and sales business which account for 65% of profits and deliver 20% ROE:

Source & Copyright©2017 - McKinsey 

McKinsey conclude that, “As platform companies extend their tentacles into banking, it is the rich returns of the distribution business they are targeting. And in many cases, they are better positioned for distribution than banks are.”

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CTMfile take: Chris Skinner’s description of the scale and strategy of Alipay operations, see, shows that this is not an idle threat from the platform companies that McKinsey have picked up on. It is almost inevitable that global banking profits will continue to decline, as the non-banks ‘eat the profitiable bits of the banks lunch’. What will this mean for global transaction banking services, e.g. reduction in global coverage continues? more banks exiting correspondent banking?