Non-traditional players eating into banks’ corporate and investment businesses: Report

SINGAPORE – Non-banking players, from fintech and private credit firms to digital asset innovators, are muscling into the most profitable corners of corporate and investment banking (CIB), a new study says.

Asia now accounts for roughly 43 per cent of global CIB revenues, making it the single most important arena in which the battle between traditional banks and non-bank players will fight it out.

Banks in Asia, including Singapore’s three local banks – DBS, OCBC and UOB – are already leading the digital future of the industry to meet rising transaction volumes and mobile-first, real-time customer demands.

At the same time, challenger banks in the region are at the frontier by offering profitable, artificial intelligence-powered and collateral-free loans, especially to underserved small and medium-sized enterprises.

These are segments where legacy banks have historically struggled to serve, giving digital attackers a foothold in future growth pools.  

The rise of these “attacker firms” threatens to upend longstanding advantages built on scale, client relationships and regulatory expertise, management consulting firm McKinsey said in the report that was released in December.

Globally, CIB revenues have so far been resilient, even in the face of recent geopolitical upheavals, representing 46 per cent of global banking revenue in 2024.

They rose at a compound annual growth rate of 5.7 per cent since 2000, ahead of other banking sub-sectors, to reach US$3 trillion (S$3.9 trillion) in 2024.

The Americas account for 31 per cent of the global CIB revenue, with Europe, the Middle East and Africa at 26 per cent. 

Preliminary 2025 data suggests that the upward trend continued in the year, McKinsey said. 

The “attackers” come in four main forms: 

* Independent investment banks that focus primarily on mergers and acquisitions, equity capital markets, debt capital markets advisory, private capital advisory, restructuring and other capital-light activities. Some of these firms, once considered boutiques, have reached top 10 league table positions and work on some of the largest and most complex deals.

* Non-bank market makers which use advanced quantitative models and digital technology to provide liquidity in a wide range of electronically traded and centrally cleared products. These include cash equities, foreign exchange, futures, exchange-traded funds, interest rate swaps, government bonds and, increasingly, corporate bonds.

The biggest players in this space now generate US$10 billion to US$20 billion in annual revenue, which is roughly on a par with the trading divisions of major Wall Street banks.

For institutional clients, these firms are already a viable alternative to the traditional investment banks in several products, the report said.

* Private credit firms, as well as foreign exchange and payments specialists – which compete based on price, convenience, ease of use and speed – are also vying for a bite of the CIB pie.

Hence, despite the strong historical performance, the report warned of more volatility ahead for the CIB space. 

Three major forces are reshaping it: macroeconomic and geopolitical uncertainty; the rise of attacker firms; and technological upheavals as digital asset adoption gains ground.

These disruptions are forcing traditional banks to rethink their strategies and operating models, moving away from scale-alone advantage towards flexibility, technology integration and capital precision, the report said.

McKinsey offers a four-part transformation playbook anchored in strategic agility to navigate this shifting environment.

First, banks must prepare for uncertainty. They must embed scenario planning into daily operations, continuously adjusting their geographic and business footprints in response to global risk.

Second, banks need to boost their operational flexibility. Building lean, scalable operating models can help cut costs and create room to manoeuvre across business cycles.

“Focusing on the ‘one bank’ opportunity, especially by deepening treasury services penetration, scaling enterprise-wide FX efforts and capturing synergies with wealth, will help drive growth,” the report said.

Third, banks must respond to structural shifts. As private credit and private markets expand, CIBs must reposition to capture opportunities to ensure relevance.

Lastly, banks need to speed up technology adoption and move from test pilots to scaled deployment. Investing selectively in digital assets is becoming critical, it added.

According to McKinsey, banks that embrace agility and digital transformation could see profitability rise by 20 per cent to 30 per cent from current baselines, excluding macro and investment costs.

Traditional banks are more likely to keep earning profits, or returns on equity, that are higher than what it costs them to raise money, though results may differ among banks, it added.