I’ve been asked recently to think about banking in 2020. That’s ten years away and, if we cast our memories back ten years, it’s quite a leap.
Ten years ago, we had lots of themes bubbling away including customer-centricity, technological leapfrogs through internet banking, increasing pressures on branches and branch sell-offs to reduce costs, cost-income pressure and more.
These are still the same issues of today and will be the same tomorrow.
However, we adapt.
Today’s pressures are all about mobile smart apps, infrastructures, speed of processing, real-time innovations, information leverage and more, as I blogged about extensively when reviewing last year and this year.
But the one big difference between now and a decade ago is the regulatory change.
I remember in the 1990s we had some regulatory drive from the changes of individual authorities that were self-regulating – IMRO, PIA, LIMBRA etc – to the new all embracing Financial Services Authority (FSA).
Now everyone says that’s a disaster – it wasn’t btw, just misguided – and so we are rethinking things again.
More importantly, the last decade has seen a rise in European regulations in finance.
The European Commission has Directives that cover all aspects of finance today and nearly all of these were established in principle in the year 2000 in Lisbon. Hence, the Lisbon Agenda.
Equally, American rules and regulations have had a huge influence over the banking system in the last decade.
As we entered the 2000s, the USA introduced the Gramm Leach Bliley Act (GLB), which also proved to be a disaster.
This Act was a response to incredible pressure from people like Sandy Weill, Chairman of Citigroup, to allow US banks to create universal banks, where retail and commercial banking could be integrated with investment banking, proprietary trading market making and insurance.
This was specifically segregated and separated under Glass Steagall after the Great Depression of the 1930s, and GLB reversed this delineation.
A decade later, many people point to this departure of regulation as the reason why markets went crazy with credit in the 2000s, as bank securitisation allowed lending rules to relax to the point of stupor.
Hence, we now face another wave of restrictive regulations based upon the Dodd-Frank Bill and the Volcker Rule, which will overshadow much of the US, and hence the world markets, through the next decade.
- January 18, 2011 – Release of study on Volcker Rule and notice of rulemaking
- October 18, 2011 – Regulations due on implementation
- July 21, 2012 – Implementation of Volcker Rule begins
- July 21, 2014 – Financial firms must comply with rules or seek extension
- July 21, 2017 – Latest extension regulators are allowed to provide under Dodd-Frank Act
Hence, technology and customer needs aligned with regulatory change will be the key driver through the next ten years.
So what will Banking be like in 2020?
First and foremost, it will be very human but remote.
I stick with the view that branches are less necessary.
Not defunct or dead, but less necessary.
Most branches will be automated remote hubs, possibly with just 1 or 2 attendants who can point you to the right machines or provide advice and service where necessary.
Such attendants will be low-paid support staff and administrators, with commission-based sales and trained wealth advisors available via large branch hubs video connections where and when needed.
Higher paid staff will also be available in the home, on the mobile, through the TV and on demand anywhere else though, anytime, anywhere.
So you then ask why anyone would bother going into a branch?
Cheques are no longer used, cash usage has declined significantly, and the need for face-to-face service is not required … but branches will be focused upon servicing commercial customers in dense urban and city centres, along with targeting advisory sales to high net worth, mass affluent and other city workers.
So a small number of large branches, staffed with both administrators and advisors, will exist for high volume sales and servicing.
The rest are automated satellites.
And an automated satellite will now be on your wrist.
Forget holding a mobile telephone and carrying a wallet.
The wallet and phone became one and the same in 2014 but, by 2019, the phone had moved from a physical device to a chip and ear piece that could be stored anywhere.
Hence, the chip is the focal point in 2020, and the chip can be inserted into a physical mobile communications device or, just as easily, into a wrist-based device, home unit, vehicle or anywhere you like.
Everything is also connected.
Real-time connectivity allows everything to communicate wirelessly in real-time all of the time.
Therefore, targeted communications are the order of the day, with many personalised notifications alerted to the consumer as they live their daily lives from “eat this” and “don’t eat that” to “do this” and “don’t do that”.
Another major change to banking in 2020 has been the rise of the social bank.
In the aftermath of the credit crisis, many Gen-Y and Millennials felt that a pure focus upon capitalism and trade was a misplaced ideal, and created peer groups online to place pressure on governments to support social finance schemes.
Many of these schemes were based on the ethos of social, or complementary, currencies and had the intent of improving the planet, improving behaviour towards each other, increasing local community interests and the general state of the nation.
These movements were supported by governments too, as aging population needs and tight budgetary policies placed pressures on governments to find innovative new ways to finance healthcare, education and related services.
Therefore, the rise of governmentally endorsed credit schemes vis-a-vis the Facebook style of credit grew and soon became a force for good.
As soon as banks saw that these alternative credit systems were viable, they also jumped on board the bandwagon, and soon credit schemes from all sorts of organisations were being traded through bank systems.
Gaming credits, airline credits, community credits, health credits, government credits … all sorts of credit systems are therefore being hosted and traded through bank systems and are fully interchangeable with fiat currencies.
But it goes further than this.
The social bank sees that it has a role to play in society, and that a bank needs to bring a moral compass to their position of operation. A big part of this change in attitude was introduced as banks discovered many of their customers were looking for alternatives to banks, as banks had lost their traditional position of trust in society post the 2008 crisis.
Therefore , leading banks of the world launched customer reachout schemes that leveraged technologies to engage in dialogue with their audience.
Interactive chat via media 24*7 had become the state of play, and banks were determined to be at the front of the game of being responsive, honest and transparent.
Therefore, the social bank had become an integral part of daily life in a constructive and interactive dialogue about more than just money.
Equally, the social bank was far more caring about their customer, and had become much more of an advisor than a provider.
Using personal financial management proactively in real-time meant that the social bank was far more of a trusted advisor.
Obviously, this adaptation of banking began slowly.
Only a few banks fitted into this space at the turn of the previous decade – such as USAA, First Direct and Triodos – but, by the end of the 2010s, the banks that had been slow to be social had languished and now focused upon pure commercial banking as their retail franchise faded.
This led to a clear delineation of banks.
Those that were social and focused upon retail relationships; those that were commercial and focused upon commercial banking trade for corporate clients; and those that operated in the investment markets, and were highly volatile technology houses.
This last point was driven home from a bank structural viewpoint thanks to the regulatory drive, which had radically changed things.
By 2020, banks are no longer universal, and many of the investment parts of the old banks had disappeared into the deep caverns of hedge funds.
This is because the regulators took the view that anyone messing with their own money or clients’ money where the client had explicitly stated that they were prepared to take the risks, could trade without restraint … but banks could not.
Hence, the old school bulge bracket brokers and market makers had become pure trading machines.
Their boxes run 24*7 in globally connected orchestration, trading in everything from oil and gold to water and climate change.
The main difference is that the trading systems allow far more exotic trading of pieces of stocks and futures.
Equally, the complexity of a trade is far greater with links, caveats, opt-outs and interlinkages related to all stock and forex movements.
As a result, only 1 in 150,000 orders are filled which means that the volume of messages across the global markets has exploded to over 10 trillion per day.
All of these trades being driven by an explosion of ex-investment bankers who now run their own hedge funds.
So the world of 2020 isn’t that much different … except that the clarity of banking focus, structure and operation was now absolutely clear.
A bank has a clear mandate and objective in who they serve and how they serve them, and the old days of smudged and overlapping objectives between investment, commercial and retail operations had disappeared.
The change was as much forced by society, customers and communities as by regulators, policymakers and governments … and the banks that realised this first, were the ones that were the most successful.