The world’s biggest banks can tighten their grip on the industry in coming years only if they learn from tech-savvy upstarts that have already claimed a slice of the pie, consulting firm McKinsey & Co said in a report.

Established firms must develop their own technological offerings to cater to younger customers, or gain an edge by acquiring companies as JPMorgan Chase & Co has done, McKinsey said Wednesday in its annual report on the state of the industry.

“Companies like Amazon, Apple, Google, Netflix and Spotify have taken existing services and transformed them into digital experiences that are now embedded in customers’ daily lives,” McKinsey said. “Leading fintechs, specialists and banks are replicating this model in financial services, turning products into features to meet customer needs and keep them engaged.”

Financial-technology firms are luring customers with tantalising perks and streamlined user experiences, which in turn has sparked an arms race with traditional lenders. More than US$20bil of venture capital funding has flooded into banking-app startups since the beginning of 2021, according to research company CB Insights.

Acquisitions can help financial firms enhance their digital offerings. JPMorgan has made deals this year, including agreements to purchase UK digital wealth manager Nutmeg Saving & Investment and acquire a 40% stake in Brazilian digital bank C6.

 - Bloomberg