FINANCE FUTURE BANKING
Don’t bank on defeat Traditional banks are losing their battle with disruptors. Yet a rare breed of leader can turn the tide Writing Philippe De Backer
maintaining and upgrading obsolete technology that requires endless unpicking whenever any change is required. Because of all this, fintech firms command a much higher stock market price than banks and one that’s often not much less than many major technology firms. To get a sense of the magnitude of the challenge banks face, we need look no further than Ant, the financial arm of Chinese marketplace Alibaba. Its technology can handle 544,000 loan applications every second and reach a decision to grant or not within just three minutes. This is the world’s purest example of digital finance’s tremendous potential. By contrast, the model of the traditional universal bank is dead, killed off by a changing marketplace and the emergence of a new breed of footloose financial players that command destructive technological power.
A different future Banks have a future. But they must accept that they have a different future. If bank leaders fail to make radical changes, they will perish. The time for those changes is now. The way forward is through ambidexterity – the ability to balance the short- and long-term, to reconcile equally the need to exploit existing markets and experiment with new ones. The biggest losers will be the all-purpose ‘bells and whistles’ banks, for so long the immutable cornerstones of a financial landscape that rarely changed except for the rare merger or acquisition that came along every decade or so. They are dinosaurs from a different age. Customers no longer need or even want a one-stop shop, so legacy banks are rapidly approaching a cliff edge: as conventional market segments blur into integrated new arenas, the very model of traditional banking faces an existential threat.
“Disruptors can build more in a month with 100 people and £1 million than a traditional bank could build with 1,000 people and £100 million in three years.” Chris Skinner, thefinanser.com
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raditional banks are falling from favour with investors. It is their newly emerged competitors that are in vogue. The scalable business models of the ‘neobanks’ and digitally native banks hand them an easy advantage. They sit outside the stringent regulatory environment of legacy banks, saving them millions of dollars in compliance. Their lower cost structure, lower capital requirement and greater flexibility in introducing products render them nimbler and more adaptable to changing consumer demands. Moreover, they are free from the high labour and capital costs of
The footloose customer Consumers have suddenly become like children in a sweetshop. They can pick between suppliers to find the one that’s offering them what they want, when they want. Increasingly, that isn’t coming from their traditional bank. Each time one of the 60