Traditional banks and insurance companies are facing extinction in the next decade due to increased digitisation in the financial services sector.
According to forecasts from research company Gartner as many as 80 per cent of what it calls "heritage financial firms" will either have gone out of business or be considered irrelevant within 12 years.
The report says established banks and insurers face a growing risk of failure if they continue to maintain 20th century business and operating models. It said heritage firms will struggle for relevance as global digital platforms, fintech companies and other non-traditional players gain greater market share, using technology to change the economics and business models of the industry.
"Digital transformation is largely a myth as institutional mindsets, processes and structures stand firm," said David Furlonger, an analyst at Gartner.
“Established financial services providers will have to move faster on digital business by building digital platforms or finding niche products and services to sell on others’ platforms,” he added.
The research company warned many banks and insurers are underestimating the degree of change that digital technology will bring to the industry in the coming years.
In addition, it said that emerging technologies such as blockchain offer transformational opportunities by creating trust between parties that do not know each other, without intermediary relationships that incumbent financial firms cultivate.
The forecast comes as ConsenSys, a company established by Joe Lubin, the co-founder of the blockchain-based distributed software platform ethereum, recently presented a new paper to the Department of Finance on how the technology could transform the Irish financial services sector.
ConsenSys, which earlier this year was selected by the European Commission to help it get to grips with blockchain technology, recently established a facility in Dublin with plans to have at least 50 employees locally by the end of 2018.
According to the company’s paper, blockchain provides huge potential for innovation and improved efficiency for businesses in financial services and beyond. In particular for Ireland the company suggests the technology could have a huge impact across aircraft leasing, banks, funds, insurance, payments and regulation.
It said blockchain is already having an impact in other European member states, with Switzerland, Malta and Estonia among the countries rushing to embrace the technology.
ConsenSys added the Republic has a burgeoning blockchain community with a growing number of indigenous and multinational companies working in the space, and support from State bodies such as IDA Ireland.
“We believe that Ireland is well placed to capitalise on emerging technology for the benefit of the financial services industry and blockchain is at the forefront of this,” the company said in its paper.
Nonetheless, ConsenSys calls on the Government to do more to ensure the State becomes a major player in the blockchain space by ensuring high-speed broadband services are available nationwide and by providing incentives to draw in more companies.
It also urges the State to look at the work being undertaken in the city of Dubai to see how blockchain can be used to improve government efficiency. Dubai is seeking to become the world’s first “blockchain-powered government” by having all official documents transacted digitally using the technology by 2020.
ConsenSys said a starting place for the Republic could be a move to enable a sovereign blockchain-based digital identity which it says would hugely benefit the financial services industry through improving the efficiency of know your customer services.