The disappearing bank?
Glance back over the last 30 years of banking in the UK and what comes to mind? High street branches and face-to-face banking giving way slowly to telephone and then internet banking. Four dominant brands. Then the panoply of banking, insurance and investment services enjoying rapid expansion and deregulation followed, eventually, by the financial crisis of 2007-08.
Taken as a whole, one can argue that, together, these elements resulted in a general failure to understand how intertwined financial institutions’ affairs had become and, therefore, how mutually vulnerable they were to a systemic loss of confidence from which we are still experiencing the shock waves.
And all of this accompanied by the inexorable rise of the mobile phone and its continuous drive to experiment and roll out new services, new protocols, new applications, emerging as the smartest of smartphones. The parallel rise of the internet, from literally nothing to Developed World dominance. The long march toward electronic payments. The emergence of cyber security. The realization that digital personal data was not only gold but, like gold, had enduring value to those who could interpret and utilize it. The question and ethics of digital identity and where it would lead us. And now the hunger to understand the implications of the Internet of Things and artificial intelligence and to grasp what can be applied – chatbots, automated and connected processes, actionable insight through predictive data analytics.
Anchors for trust
Where were the banks, in the face of this astonishing digital change? Where are they heading now? Is there an existential threat to banking, in which dematerialization of information, processes, money itself, will ultimately render banks obsolete?
Banks and banking endure, as no better anchor for trust has yet been definitively found and because transactions are the lifeblood of market economies. The proponents of distributed ledger technologies (chiefly Blockchain) as the catalyst for monumental structural change in financial systems are counter-balanced by swathes of the establishment.
Yet, mass transactions are starting to lose their unique attachment to banking as new payment methods, digital currencies and the effects of new regulation gather pace.
UK payments infrastructure, largely built and still heavily influenced by the major banks, is being marketed as a cornerstone of the Payment Services Regulator’s long-term plans, further reducing their influence on its future direction and ownership. At the same time, the whole payment ecosystem is being liberalized with the advent of the Second Payment Services Directive (PSD2), ushering in the promise of Open Banking. Global digital platforms (Google, Amazon, Apple, Alibaba and the like) are starting to consolidate and extend their alternative payment assets and capabilities.
And the generational divide in usage of digital services has largely dissolved. For economically active citizens, these services are simply too convenient to reject.
Newly FCA-regulated entities, ‘Payment Initiation Services Providers’ and ‘Account Information Payment Services Providers’, are now free to acquire and act on payment instructions, with customer consent. These can be banks, but need not be. But banks are now legally bound to share the data to enable the instruction to be acted on and fulfilled where there are nonbank third parties. If it remains true that ‘transactions make relationships’ then over time, these new entities may well become the Personal Finance Management hubs of the future, in which the bank would play a subordinate role at best.
Given the continuing dominance of those few, very large retail banking groups and their brand strength, it would be rash to predict their early demise. Neither should we assume that they will stand idly by watching their core franchise and influence diminish. But it will be very interesting to see how quickly, radically and creatively they respond – and how they not only digitally transform their business models and services, but reinvent their entire purpose and function.
Digital Vision for Financial Services
This blog is part of the Atos Digital Vision for Financial Services opinion paper recently published in the UK, where we explore the challenges and opportunities in a newly disrupted space for banks, insurers, FinTechs and technology incubators, who are today experiencing an unprecedented rate of technological and regulatory change.