There’s a constant buzz about disruption, which kind of sounds like destruction to me. We have to realize that no one is going to destruct or even possibly disrupt banks. No one. It has not happened in my lifetime of working with technology in banks, and I don’t think it will happen in the next generation of people working with technology in banks. That will disappoint many, as emotionally there are large swathes of people who would love to destroy the banking system. But it ain’t gonna happen.
Because banks are the only regulated and licensed institutions that act as a store of value, as I blogged the other day. This does not mean that banks should be complacent, but they can relax somewhat as change in financial services happens very slowly. In fact, the biggest change in financial services were the building of the massive global universal banks in the 1990s and 2000s, which has now been reversed.
A global, universal bank is an expensive beast to build and, as the institutions who tried this have realised, are often not well received by the local citizens. Yes, a global, universal bank was a laudable aim, but it is only needed for global, commercial clients. A consumer bank is often better off being a national institution, rather than a global one.
This is why we have seen the largest banks downsizing and reversing tracks. But what of a global platform bank? Could there be a global financial platform?
Certainly, that’s what the big internet giants have been building for commerce and socialising, so how come there’s no big global financial platform? You may say what about PayPal or Alipay, but neither of these offer global banking services, just payments. We may look at the likes of N26, Klarna, Zopa and others, all of whom have or are trying to get banking licences. What if they all collaborated and agreed to work in a collegiate as a global financial platform?
Well, that may happen, but even if it did, would it threaten the banks? If Amazon acquired Capital One, would that threaten JPMorgan Chase? If Ant Financial offered MyBank outside China, would that worry HSBC?
I guess the answer is that yes, any of these moves would be of concern the largest banks of the world, but they would work out how to adapt and survive. They always have. Maybe that’s the view these banks have, and they will survive as long as they are not complacent.
These are the themes I’ve been blogging about a lot lately – adapt and survive - because I’m just getting annoyed with the theme of so many conferences, presenters and start-ups, talking about the end of banks. We are nowhere near the end of banks, just near the end of banking as we know it. Banking is changing into a much narrower role, where the core is the store of value. All the things that banks do around that store of value – payments, loans, investments, savings – is being eroded by tech, but the core of banking stays.
The question then has to be: if all the things we used to do make no profit anymore, where is the money to be made in the future? … and the answer is: data.
Data is the new air, and the banks that breathe the best will win. In other words, banks that really get data analytics, and can apply machine learning to gain deep customer insights are the ones that will survive. Banks that cannot adequately analyse their data to gain insights will be acquired.
Simple as that really.
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...