"Banking is necessary, but banks are not.".
You might think this quote is taken from a recent interview of a young and provocative CEO of fast-growing fintech trying to make itself a place on a crowded market. Fun fact, this quote is from... Bill Gates... in 1994.
A few months ago in Amsterdam was held the Money2020 conference, one of the most important FinTech events in Europe. I was given the opportunity to attend a workshop where participants were able to illuminate Bill Gates' quote.
Banks are far from being obsolete from a technological point of view. Indeed, in recent years they have innovated to ease the interactions that customers have with them. On the one hand, in the daily monetary interactions with wireless payment, instant transfers in Europe (Instant SEPA). On the other hand, they have been able to open up with the Open API and offer customers the opportunity to take advantage of their banking information at another level.
How is the current technological context a challenge for banks? In recent years, the number of financial services around banking has exploded, which has led to a decentralisation of the finance industry, with a myriad of third parties. If a company wants to have an online payment solution, they will go with Stripe and not with their bank. If a person wants to have data insights about his current expenses, he or she will use Bankin'.
What do banks need to become technology leaders? To my mind, first step is to continue investing in open API. Two years after the implementation of the PSD2 directive, the number of calls on APIs has increased by a factor of 75, this shows how important it is to invest there. An excellent example is BBVA with one of the largest Open APIs in the financial sector. In addition, banks are lagging behind on topics such as Enterprise Blockchain and cryptocurrencies, there is room to turn POCs into concrete initiatives to avoid being overwhelmed
How can we say that banks are obsolete when customers are always asking for more contact and trust? Banks have a huge asset over other financial services, their physical presence. In France, there is an average of seven branches per 100 km². In addition, several studies highlight the trust that people have in banks. According to this IFOP study, the bank is the industrial sector that inspires the most trust compared to the telecom, hi-tech and e-commerce industries.
How is the current societal context a challenge for banks? The new generations are very demanding in terms of connectivity, transparency and social & environmental commitment from institutions, and among them from banks. New players like GreenGot and Helios in France are now attracting a new generation fed up with traditional banks' investement strategies, to green neobanks that make their money work for our planet.
What do banks need to do to remain central to society in the future? On the one hand, they should position themselves as proactive in the fight against climate change. Rather than waiting for a new regulation on investment transparency. Some services are already doing it like Greenly, why not the banks? On the other hand, as a pillar of society, they should extend their services to the millions of unbanked people. Erine and Louis have a written a nice piece to dig deeper into the subject.
Banks are a key part of our society and have an impact on people's daily lives. With the emergence of new fintech services and recent financial crisis that have eroded people's trust in the banking system, the place of banks on the chessboard has been challenged. But don't jump the gun, they have started to react to keep up with new industry standards, the question is will they be swift enough to resist?
Banks are certainly too big to fail, but how to help them not becoming to old to change?
At Sipios, we draw on our experience to change banks by transforming their technology strategy and methodology to make them technology leaders.