A couple of years ago, PwC made the claim that banks as we know them may no longer be needed by 2025. This claim of disappearing banks is rendered plausible by the rise of FinTech and various other actors seeking to gain a niche of the evolving banking ecosystem in which death to the incumbent is assured through a thousand cuts. An alternative scenario would see the banks as little more than providers of infrastructure – or banking as a platform – from which third party API’s proliferate.
A common prescription for those facing disruption is to disrupt themselves first. In this case, perhaps the key for disappearing banks is to make themselves invisible. The rise of personal digital assistants in the period to 2020 will make this possible, with Gartner for one predicting that by this date we’ll be having more conversations with bots in their various forms than with our spouses[i]. The continuation of an ever-more connected digital lifestyle, the emergence of the IoT and a profusion of digital applications is likely to augment this trend in which banking becomes embedded in every-day activities to a greater degree. Data driven, tech-savvy banks should be able to adapt a truly customer-centric model if they are able to use their data stewardship to open new value chains. For example, 97% are happy for banks to use their data if it were used to offer them a wider range of services[ii]. The opportunities in such a move would appear significant, but are matched only be the challenges of ignoring this trend; API-powered and data fuelled business models are already appearing such as Figo and Open Bank Project.
To be clear, both the disappearing bank and invisible bank scenarios suppose the dissolution of chunks of the traditional banking infrastructure. The choice is not between costly and potentially painful decisions but rather on whose terms these decisions will need to be made. It is estimated that machine learning will have the potential to disrupt 40% of banking roles[iii] and some banks have already instigated this; for example in its’ billion euro attempt aim to digitise and automate 80% of its’ processes by 2020, Commerzbank has announced 9,600 job cuts[iv]. ING has announced similar plans.
In transitioning to am ‘ambient’ bank – able to use platforms to give you personalised information, data and insights unobtrusively and at actionable points, incumbent financial institutions are essentially accepting the value proposition of FinTech. The adoption of a FinTech veneer is easy enough; the processes, systems and culture of the incumbent must align with the technology is its’ full potential is to be realised. To adapt legacy systems and legacy people to enable the deeper benefits that come from excellence in data provenance, interface design and value proposition are more difficult, but will help distinguish those who disappear from those who choose to become invisible in the digital age.