The impact of globalisation and information technology on the strategy and profitability of the banking industry

The profitability of banks world-wide has decreased from the early 1980s to the 1990s. This has been attributed to several factors: the decline of traditional banking activities (deposit taking and lending), poorly performing debts (arising from poor lending decisions) and for domestic banks to factors such as depressed property prices and important local industrial sectors performing badly. However the analyses of bank performance tend to be short-term and narrow in their outlook, and seldom attempt to explain the underlying trends and processes of change. It is argued that the broad competitive forces of information technology, globalisation and deregulation are de-stabilising the banking industry which leads to irrevocable changes which allow new entrants, disintermediation, innovation and customer changes on a much greater scale than has occurred in the past. These concepts are illustrated using a range of different bank markets as examples. To compete in these new markets different approaches are needed. Possible strategies for addressing new bank markets are outlined with reference to size and type of bank and the long-term outlook for banking is discussed.