15 Aug 2018
Bill Gates once said – although he wasn’t the first - “banking is necessary; banks are not.”
It’s not a new idea. But in a world where emerging technologies, fintechs and open data are challenging the traditional role of the financial services industry, is it now even easier to imagine a world without banks?
We asked a panel of banking and fintech experts to debate the future of banking. And banks. But to keep things interesting, we had a banker and a fintech guru on either side of the debate.
Arguing for the banks is ANZ’s Pricing Operations Exper, Heang Forbes and Stone and Chalk’s Melbourne General Manager Alan Tsen.
Against the banks: MoneyPlace’s Head of Communications, Melissa Mack and ANZ’s General Manager of Group Services, Nigel Adams.
You can read highlights from the debate below.
There are texts dating back some 4000 years relating to laws governing financial services - evidence banks were already in operation and required regulation.
"Trust arrives on a tortoise and leaves on a hare.” - Adams
Even back then, Babylonians could deposit their gold in temples for safekeeping for a fee. This gold was then lent out for interest. Fast forward to 2018 and banks still exist today.
Society has evolved and adapted and so too have banks.
The Australian financial services sector is the largest sector of the national economy of Australia contributing around $A140 billion to gross domestic product each year. It is a major driver of economic growth and employs around 450,000 people in Australia.
Many banks play a pivotal role in society. Without banks there would be no scaled lending, no investment and therefore no economic growth.
New players don't have the scale, the infrastructure nor the capital and the data that banks have and it's arguable whether they have the means or the appetite to obtain the banking licence necessary to play such a role in society.
As much as a new offering can innovate, they can't replicate the trust that is fundamentally held by banks.
Banks therefore have a social and economic obligation to innovate, to work with our fintech partners and startups to meet changing consumer expectations, standards and needs.
There will always be a place for banks in our community and economy. How big that place is will be determined by how well we innovate and work with others.
The ball is now in our court.
There's no doubt banks are under fire with the perfect storm coming. We've had the royal commission, the real time New Payments Platform is here and open banking is coming.
The banks are in trouble but I think the question isn't “are banks relevant” it's “how are they relevant”.
That banks are going to look the same as they do today in the next 10, 15, 20 years is highly unlikely. Banks will change and they will evolve. They have already evolved over a number of centuries and the key piece that banks provide is trust - trust that funds will be there when they're called upon; trust with relation to lending; trust in a number of areas.
Banks also still provide services at a scale a lot of fintechs cannot.
The sad truth is many peer-to-peer lenders still rely on financial institutions for warehousing facilities and for quite a lot of their back-end infrastructure. Even if you look at many challenger banks, they're knocking on the doors of banks to provide banking facilities.
Banks have the trust that they will be around today, they will be around tomorrow, they will be around more than likely in a century. But how they operate, what they actually do, the core of their business is what will change.
What we're facing now is a change in the services that banks will be providing and where they fit is what is important, not whether they are relevant.
Over the next decade, we'll see changes which will make banks look completely different - I think in many ways they'll look like Facebook or Google - a software company.
Will it be the institutions which are called banks today providing financial services in the future? All the research I've seen has led me to the conclusion - no.
The services banks provide are a means to an end which can be readily tagged onto the underlying products and services consumers actually want to buy.
Competition is coming. There haven’t been this many alternatives to what the banks offer in the past and it's only going to accelerate with open banking. 700 years of institutionalised, received wisdom inhibit and preclude banks from thinking differently, just when they need it most.
Trust is fundamental to the role of banking but trust arrives on a tortoise and leaves on a hare.
Recent revelations have caused customers to look for alternatives and have forced them away from institutions which provided that trust in the past.
At the same time, the revelations have sown the seed of collective guilt and self-doubt amongst staff in the banks just when their “can do” attitude is most required to fight back against the fintechs and tech giants.
The banks, or whoever provides these financial services, will need to think differently; act differently; behave differently.
I’m not sure the current banks can respond in time. I hope they prove me wrong.
Not long ago, the idea that the banks – one of the core pillars of modern society - wouldn't be needed would be outrageous. But it's true - banks today are no longer required.
Technology and innovation are giving us trustworthy, faster and more efficient alternatives and the banks are lagging behind.
We all need somewhere to put the money that we earn somewhere we trust.
There's been a shift and now we're leaving money on platforms like PayPal, Alibaba and even Myki in small amounts.
The most successful innovations targeting the worlds’ unbanked are coming not from the growth of traditional banks or financial services but telecommunications and e-commerce platforms.
We're also seeing the rise of neo-banks free from legacy banking systems looking to revolutionise how banking is done from front-end services.
Competing against the banks as a fintech requires a higher entry barrier in Australia but there are regulatory changes such as open banking helping and the Royal Commission is changing the conversation on trust.
Change is on the horizon.
Carina Parisella is Innovation Editor at bluenotes
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
15 Aug 2018
11 Jul 2018