Bank business models: how to balance digital transformation and EU regulation

Banking has radically changed because of deregulation and digitalization that have started shaping market structures, and the way services are conceived, produced and delivered to the end customers. Incumbents must re-invent themselves and this requires the development of resilient business models. Banks have started investing to improve their operational efficiency and better cost management, but they have to move them forward. The chapter starts highlighting the lessons learnt from the past by undertaking a backward-looking approach and highlight some bank’s vulnerabilities. Other sections offer: a brief overview of the banks’ profitability in the current macroeconomic environment; a description on how digital technologies are changing the banking landscape, and then it is described how the European Central Bank supervision is putting a major attention on banks’ business models to manage and control risks and increase consumer protection and banking resiliency. Finally, conclusions pave the way for some managerial implications where the big banking transition is changing the dynamics of financial institutions in multiple ways, across the balance sheet, payments, and distribution. They all are structural shifts and, when combined with the uncertain macroeconomic outlook, and put a considerable set of challenges for all financial institutions, whether traditional banks or the emerging galaxy of nonbanks.