Fintech to seize 40% of banking revenue, boosting volatility
A Bank for International Settlements analysis projects traditional banks will retain three-quarters of assets, but new providers could capture 40% of revenue, increasing earnings volatility and deposit outflow risk.
Digitalisation Reshapes Core Banking Functions
The global banking system faces significant transformation over the next decade, driven by digitalisation and the emergence of new service providers. A Bank for International Settlements (BIS) Working Paper, published on 4 November 2026, explores how core banking functions, risks, and profitability are set to evolve.
The analysis, based on a framework structuring expert judgement across various scenarios, examines the impact of technology, regulation, consumer preferences, and macro-financial conditions.
While digital-only banks, technology platforms, and decentralised finance currently hold less than 2% of banking-system assets, their influence on competition, customer expectations, and the speed of financial stress transmission is already pronounced, prompting a re-evaluation of traditional banking models.
Traditional Banks Retain Assets, New Models Capture Revenue
Despite the rise of new entrants, traditional banks are projected to retain approximately three-quarters of banking-system assets across all scenarios examined by the BIS Working Paper, published on 4 November 2026. This finding, derived from classifying 9,000 banks in over 150 jurisdictions, suggests a degree of resilience in established models.
However, the paper highlights that asset shares understate the true extent of the shift. Emerging technology-based models, which could grow from a baseline of about 3.5% to between 3% and 27% of assets within ten years, are poised to capture a substantial share of the revenue pool.
These new providers may contest roughly 40% of the industry’s revenue, particularly in areas such as payments, lending origination, distribution, advice, and fee income, leaving traditional banks to primarily manage the balance sheet.
Earnings Volatility and Liquidity Pressures Mount
The shift in revenue streams from net interest income to fee and platform revenues is expected to introduce greater volatility into bank earnings, according to the BIS Working Paper published on 4 November 2026. This change alters the risk profile for financial institutions.
Concurrently, the proliferation of digital channels enables deposits to exit banks more rapidly, shortening the timeframe between funding stress and capital pressure. The paper also identifies an increase in operational risks and dependencies on third-party service providers, which adds to existing challenges, particularly for mid-sized banks.
These evolving dynamics necessitate a re-evaluation of risk management frameworks and a proactive approach to maintaining financial stability.
Key Supervisory Responses for Future Banking Stability
In response to these evolving risks, the BIS Working Paper, published on 4 November 2026, identifies four universal supervisory priorities applicable across all scenarios. First, regulators must reassess current assumptions regarding deposit outflow rates, acknowledging the faster movement of funds in a digital environment.
Second, strengthening operational and third-party resilience is crucial to mitigate new forms of systemic risk. Third, sustained weak earnings should be treated as an early indicator of solvency risk, prompting closer scrutiny. Finally, improving data collection on emerging business models is essential for effective oversight.
These measures aim to reinforce the stability of the banking system as it navigates significant technological and market shifts.
Asia's Banks Must Adapt to Digital Transformation
The findings from the BIS Working Paper, published on 4 November 2026, carry direct implications for Asia's diverse financial landscape. Financial regulators and institutions across the continent, particularly in markets with high digital adoption like Singapore, Hong Kong, and South Korea, must proactively address the identified supervisory priorities.
Banks in rapidly growing digital economies across Southeast Asia should integrate reassessed deposit outflow assumptions and enhanced operational resilience into their strategic planning. Regulators are advised to strengthen oversight on third-party dependencies and consider sustained weak earnings as a critical solvency risk indicator.
This forward-looking approach is vital for Asian banks to maintain profitability and stability amidst the ongoing digital transformation, as the trends outlined are globally applicable and already manifest in various Asian markets.
This analysis is journalism, not investment advice; consult a licensed professional before making financial decisions.
Pieces are credited to the desk that commissioned and edited them. Our editorial standards, and the desks behind them, are set out on the Editorial Standards and Team pages.
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