No, Automation Won’t Kill Banks, But it Will Change the Financial Services Game, Part 1
We live in a world where FinTech automation is forcing traditional banks to move faster and deliver better customer experiences. This new world demands a completely different business model from traditional financial institutions.
“The first time that I encountered FinTech, says FinTech commentator and best-selling author Chris Skinner, “was over a decade ago at a meeting in London, during which someone had the idea of launching a business that they called ‘an eBay for money.’”
“Their idea, said Skinner, “was that you could have people who have money connected to people that need money through a platform and an algorithm.”
Over the past fifteen years, this peer-to-peer business model has done pretty well in the United Kingdom elsewhere. In his thought-provoking essay in HYPERAUTOMATION—a recently published collection of expert essays on low-code development and the future of business automation—Skinner notes 36% of all new personal loans were originated by FinTech companies in the United States in 2017, according to Bloomberg, compared to just 1 per cent in 2010.
Integrating Finance and Technology
That’s a noteworthy change and the reason why the integration of finance and automation is such a hot market today. According to KPMG, the $111.8 billion that was invested in FinTech companies globally in 2018 was more than double the amount of the year before.
In short, Skinner argues that if you’re in banking—or any other business—that doesn’t provide consistent access to a digital, non-stop, real-time customer experience, you are irrelevant.
With the COVID-19 crisis, says Skinner, there were two categories of companies that responded to the challenge. Those that depended on physical connections—including airlines, retailers, theaters and the like—saw their businesses shut down. They basically could do no business until people could safely gather and connect. But organizations with business models based on digital connectivity—logistics and delivery firms, online stores and retailers, online streaming services and the rest—have thrived during the pandemic.
Likewise, in financial services there basically were two groups of companies: Banks that were ready for the crisis and banks that were not.
Banking Needs a Business Model Makeover
Massive investments are being made in everything from peer-to-peer payments and lending to AI, cryptocurrencies and blockchain distributed ledger technology. But don’t be fooled. It’s not about technology in search of a solution. It’s about how the astonishing evolution of digital technology has turned the business model of traditional banking upside down.
“The business model of banking,” says Skinner, “is designed for the physical distribution of paper in a localized network through buildings and humans. Now, we need to rip that structure apart because what we are dealing with today is the digital distribution of data through software and servers on a global network,” says Skinner.
Skinner also argues that this is a radically different business model for any business, and that it is now particularly relevant for financial services due to the rise of Open Banking—a secure way to give providers access to your financial information. Skinner’s commentary also reveals how we are now living in a world where FinTech is making banks do what they have always done, but cheaper, faster and better with technology.
If banks understand that, says Skinner, then they will partner and collaborate with, invest in, and mentor these thousands of new FinTech companies. This is why companies are getting billions of dollars in investment from banks to be part of their marketplace, part of their community. Which, in turn, enables the banks to bring FinTech capabilities to their customers.
7 Keys to Adapting to a Digital World
There’s a digital revolution that goes much further than just changing banking. In fact, it’s changing the financial services game:
- Real time: Technology enables us to fund, save, spend, invest, transact, borrow and more in time windows identified as relevant to us, not by products offered by institutions.
- Anytime, Everywhere: Barriers to access will be seen as a reason to switch to another provider.
- Seamless: Digital consumers don’t want to think about money and banking. They want it stitched into the fabric of their lifestyle to support the way they live.
- Personalized: When things are happening in the financial world that digital consumers should know about, they want to be told to their face or, rather, their device.
- Predictive: With the deep mining of financial lifestyle data, banks will be able to predict the financial lifestyle needs of digital customers.
- For everyone: Everyone should have the basic human right to send money freely, cheaply and easily to anyone else.
- Reaching the Unreachable: Building on the last point, the new world of finance can reach the long tail of consumers previously overlooked.
A Revolution of Humanity
This, says Skinner, is why we have seen radical change to our world in the last decade and there are many developments of non-traditional finance that are creating inclusive societies and new models of finance for the future.
Contrary to what the skeptics are saying, Skinner makes clear that we are living through a revolution of humanity through digitalization with technology. He delineates how it is a fundamental change to how we think, trade, transact, talk, build relationships and build structures. All of which demands a completely different business model from financial institutions.
“They must move faster than they have had to in the past,” says Skinner. “They must be more nimble, so they can change on a dime. They must constantly adapt to a revolution in-progress.”
It is incredibly difficult for traditional institutions to make these changes, especially if their leaders do not understand them and their IT systems don’t support them,” says Skinner.
Skinner’s HYPERAUTOMATION essay is a must-read for anyone who wants to know how the world of banking is changing in response to FinTech automation and the forces of change.
Watch this space for the final episode of this thought-provoking two-part post.