Most banks will disappear (Part One)

Five years ago, Gartner published a report stating that 80 percent of financial institutions would disappear by 2030.

Most banks will be made irrelevant by 2030 - Gartner

Within 12 years’ time, 80% of financial firms will either go out of business or be rendered irrelevant by new competition, changing customer behaviour and advancements in technology, according to forecasts by Gartner.

At the time, I said this was trash forecasting (see https://thefinanser.com/2018/10/gartner-i-thought-better). The reason I mention it today is that it was highlighted in a keynote presentation at the Mobile World Congress:

Oh dear.

In fact, it’s funny how often people predict the death of banks. Even bankers predict the death of banks. Take this one from the CEO of BBVA in 2013:

“In two decades, we will go from 20,000 ‘analogue’ banks today worldwide to no more than several dozen ‘digital’ banks.”

It just isn’t going to happen.

Banks are the core of most economies and tied to their government’s tails. They are not going away. This is a topic touched on often, and is a core misunderstanding of technologists, fintech firms and analysts. Banks don’t die. They get acquired and merged, but they never die.

The issue with this is that if a bank knows nothing can kill it, why should it change?

Obviously vendors and folks who want to sell to banks have to convince them to change. But why bother? We were here a century ago and we will be here a century from now. Why would it make any sense to change?

Well, banks do change but they only change when it is clear they have to. It is not because they will die or are at risk of dying. It is more to do with the needs of the markets, their competition, regulatory requirements and identifying opportunities to reduce cost-income ratio or improve return on equity.

In fact, as I post news of Klarna’s billion dollar losses and mass layoffs in the Fintech markets, you realise that the vulnerabilities are not with the banks but with their great pretenders.

That realisation makes you think that the big banks are not going away. If anything, they are going to get bigger. They will acquire those who are vulnerable or, at the least, learn a lot from them and copy their capabilities.

Does this mean that there is no point in launching a challenger bank?

Not necessarily. However, if you launch a challenger bank, you must ask yourself: what is going to make the difference?

It’s digital. No.

It’s new. No.

It’s down there with the kids. No.

The only thing that makes a challenger bank challenge is interest rates, service and ease. This is why, when I look at the range of FinTech start-ups out there, I ask questions about their ability to really survive and challenge. A few are suspect. A few make up their performance and results. A few are dead (Wirecard).

It’s interesting when you look at the neobank and challenger bank landscape and the strongest ones are doing something different. Latin America’s NuBank is eradicating excessive fees whilst banks like Monzo are giving me alerts. In fact, the biggest difference between many new banks versus old banks is that the new banks inform me whilst the old banks expect me to do the work. By way of example, my good old incumbent bank thinks that I’m their best digital customer. I open the app two or three times a day, whilst I never open my digital bank’s app. However, they’ve got that all wrong. What they should be asking themselves is: why does Chris open his app two or three times a day?

The answer is that the good old bank never gives me information about things on my account. Zero alerts, zero news, zero knowledge. As a result, the customer is forced to open the app to see what’s going on. Compare that experience to the neobank and challenger bank where updates are provided automatically as a flash on the screen, which means you don’t need to open the app, and well, you get the idea.

Why can’t the traditional bank provide alerts? Because digital has been added to the old systems that are built for physical. Their app is not built for real-time connectivity, but for purely updating branch systems that no longer exist.

So yes, banks may never disappear, but they may get replaced by banks that are fitter for today than those built for yesterday.

 

Part two here if interested.