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Finance and banking in 2035

Looking at the long term, I tried to think about the effects of today's changes in the political, economic, social and technological spheres would have by 2035. 

Obviously, there are pure guesses and the list is only a starter for ten, but here are a few clear things that seem likely:

Investment banks will not exist as we know them

The banning of proprietary trading, lowering margins from trading operations, hounding of the markets for rate rigging and insider trading, overheads of compliance and trade reporting, investment in technology to keep up, yada, yada, yada, means that most banks with large investment banking capabilities will close shop.  You can already see this happening, but it's going to move risk out of the banks and into those investing.  In other words, banks will provide investment platforms to enable investing, but will not be advising or investing themselves.  There will be just one or two major players who continue with any major investment bank capabilities.  This does not mean that all investment operations end – you will still have asset management, wealth management, M&A, trade finance, corporate bonds, private banking etc – but that the banks will purely take a fee for trading through their systems, rather than making a buck by advising or manipulating the trade process.  What does this mean for treasury operations?

Treasury will be pumped direct

Treasury operations will move to a complete self-service, corporate in control model, a little bit like consumer banking.  It already has for some.  Just look at Deutsche Bank's Autobahn App Store.  But it goes further than this.  Corporates will have their treasury operations directly on exchange.   The bank's FX and transaction services will be APIs that the treasurer plugs into their structures as they see fit.  After all, the Treasury Workstation is now just a bunch of components that the treasury team puts together to suit their needs for working capital, supply chain (most of which is on demand at location via 3D printers) and trade finance as they see fit.  And when they need advice, where do they go?

Boutiques and specialists become the go-to guys

Banks will still have advisory services for M&A but, when it comes to structured products that involve risk, much of this market will have been taken over by boutique, specialist individuals and firms.  In fact, the world of the near future will be dominated by market making individuals rather than firms.  You only have to look at etoro and the other social trading platforms out there to see where this is going.  Cream rises to the top and, just as with Warren Buffet and Berkshire Hathaway in the last century, the next century will see the eWarren Buffet at the iBerkshire Hathaway,  This eWarren will be online all the time and sharing their trading for all to copy and share.  That's how markets are made in the new networked economy.  This is because banks have become so heavily regulated and policed that they have ended up being more like roads (or rails if you prefer).  You drive on them at your risk, but the road itself is not at fault.

Banks are roads?  No they're sheep!

Banks have acted like sheep for years – if JPM are doing it, everyone should be doing it – but now they have changed.  They now all flock together in a very nervous way.  In fact, banks were more like wolves in sheep's clothing at the start of this century.  They looked like they flocked together, but they were more like a pack of wolves chasing the easy money prey.  Now, the regulators have beaten the wolves into submission, so much so that they all behave.  Now, when they provide the roads or rails, then they do this in a very nervous way.  They are meticulous about details, recording, reporting and ensuring total transparency, openness and honesty. They have to in order to keep their licence.  That is why the boutiques are winning as the boutiques can at least take decent risk to get a decent return.

Value in the cloud

In this new world of everything being through bank platforms, the way in which banks offer those platforms is very much simplified.  Like Bitcoin, banks are now cloud-based services used on demand as seen fit.  And, unlike Bitcoin, banks are offering value exchanges in any form.  When you have accumulated any form of wealth – whether in gaming, gambling, commerce, ideas, knowledge, community, influence, affluence – you can store it in the bank.  You don't even need to think about it.  You just tag it value and it's stored in your on-demand bank as a credit.  Then, when you need to use it, you just blink at whichever piece of your value store that you want to use at that point and that's it paid.  It's a Minority Report world where the blink of an eye not only authenticates but it identifies the payment mechanism, and it's all in real-time augmented reality. 

That is because …

Everything is digitised, tracked and traced

The world is on the net.  Everyone is connected to everyone; everything is connected to everything; and everywhere is accessible anywhere.  Goods in container ships shout out their locations to the treasury team.  As Samsung ship their billionth pair of networked shoes, the size 43 brown loafers scream "we are in container 18, shelf 4, box 31 and have serial number 7675331897"  because everything is on the net.  As Chris Skinner flies from London to New York, not only do you know that I am 11,000 metres in the air passing over Greenland, but that I've just left seat 33F to visit the toilet, because everything is on the net.  In this world, you run everything in real-time and differentiation is all about pro-action and never re-action.  If you have to react to a customer, you've lost the customer.  As a result, sure there are complaints, but you never see them as the customer just says switch and it is done.

There are many other visions and ideas in my ideas of the near future based upon today's trends and realities, but these are the headline ones that come to mind. 

Nevertheless, I'll give you one last one that came from Richard Dratva, Vice Chairman of CREALOGIX Group, at a conference I recently attended.

A couple arrive home, exhausted from a house search.

They have to move because their third child is on the way.

It's Saturday night.

As they sit with a glass of wine that evening, they review their property search.

There are three properties they like but the first gets poor reviews from the assembled commersocial network.

Schools and commute links are not so great as compared to house number 3, which they love.

However, house number 3 would push them over budget once Johnny Junior arrives, so they plump for house number 2.

House number 2 ticks all the boxes, meets all the criteria and they loved it so Johnny Senior touches the Select This House choice and … 24 hours later the house is theirs. 

They move in on the Monday.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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