Banks' technology investments are not panacea yet, warns Bernstein

(ShareCast News) - Bernstein warned investors not to expect the rise of financial technology to enable banks to significantly cull branch numbers in coming years, but that substantial changes to the industry are still likely via 'fintech'.Bernstein, whose current stance on UK banks has Royal Bank of Scotland and Standard Chartered ahead of their rivals on 'outperform' ratings, talked to a senior partner at McKinsey's financial services practice in the UK & Ireland about the opportunities for 'digitalisation' in retail banking.McKinsey's position is that there is not much more room for UK banks to cull any more than 24% of current branches as they are needed to make sales and be used as liabilities and physical reassurance for customers, but restructuring of their layout could lead to more efficiency and ensure a lower-cost service mode."The good news is that the branch itself can be totally reformatted and doesn't need to be all services to all customers. That in itself represents a sizable cost opportunity both in space deployed and FTEs employed. We are at the beginning of that process."Banks have been investing aggressively in technology and a number have formed "innovation labs" that include providing seed funding for startups within the banking space, with McKinsey believing technology spending in the industry will be "continuous and are here to stay".With regards to the core bank lending businesses, Bernstein took from the call that fintech is not really a competitive threat but actually a marginal liquidity provider."The single biggest opportunity, we feel, in the fintech space is for trade banks to move into B2B platforms given their footprint and relationships. But inertia and a reluctance to innovate means this will still take time.In the mean-time, Bernstein warned that investors should remain wary of two risks: elevated technology costs and threats to security as platforms move online.