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More thoughts inspired by BankThink’s ” The Future Model of Banking “ series:

It’s clear that the banking industry is currently in a period of transition sparked by important changes in regulation and the widespread consumer adoption of online and mobile technology. For the last 30 years the industry has been continuously consolidating, dropping from nearly 14,500 institutions in 1980 to just over 6,000 today. Mobile banking has changed the way consumers interact with their financial institution, and the way that bank marketers communicate. Big data has created new opportunities for cross-sell and qualification, and allowed consumers to visualize and track their finances like never before.

We know things are changing; the interesting question is, what’s the end game? Where are we going? It’s not an easy question to answer, because it requires a lot of knowledge about the forces that could affect banking, and also a fair amount of imagination.  Stretching the limits of both my knowledge and my imagination, I can envision three possible futures:

 

1)     Banking might become more like the telecommunications or the energy industry  

Banking like telecommunications

There’s been a lot of stink about “Too Big to Fail” over the last two years, and many measures have been proposed to prevent continued consolidation in the industry, but would a banking sector composed of a few big players really be that bad?  The players in the telecommunications and the energy industry are equally if not more “Too Big to Fail” than the biggest banks; imagine what would happen if Verizon or National Grid shut their doors.   And as much as we may be loath to admit it, the “Too Big to Fail” future is pretty realistic. Core banking services, taking deposits, making routine loans, facilitating payments, are essentially commodities, like phone service or electricity. All three industries are highly regulated. Margins are increasingly thin, and there’s already an eerie parallel between Bank of America, Chase, Wells Fargo and Citibank and Verizon, AT&T, T-Mobile and Sprint.  This future would be a boring future. Banking would become a slow struggle between giants, each kept from gaining too much or losing too much market share by the constraints of anti-monopoly regulation.  But it might actually be easier for the consumer; less choice often means happier customers, and when everyone in the industry is invulnerable to failure, there’s no need to worry.

 

2)     Banking might become more like the healthcare industry    

Healthbiz decoded

Photo credit: Healthbiz decoded

I often compare the world of financial technology to the world of healthcare technology; both are complicated but essential back-ends to basic consumer services.  The parallels between banking and healthcare extend further; think of insurance companies as banks, online claims portals as online banking platforms, the offices of in-network providers as branch locations, and pharmacies as ATMs. You can liken primary care physicians to financial advisors; they are probably the most important part of the whole thing, but unfortunately you only them in truncated 30 minute sessions once every six months or so. In both industries, regulation that’s supposed to help often just ends up making things more difficult.  I can easily imagine banking becoming more like healthcare, and that scares me. Healthcare today sucks. It’s impersonal, obscenely complicated, and often fails to provide necessary care. If we don’t watch ourselves, (I’m looking at Washington, Silicon Valley, AND Main Street) banking could get worse.

 

3)     Banking might become more like… banking?

back-to-the-future-delorean

Of course I’m being somewhat flippant when I say that banking will turn into telecommunications or energy or healthcare. Banking is banking. There is nothing like it, and there never will be, and to predict that it will someday mirror the model of a different industry is to set yourself up for a sure loss. Therefore the third end game I imagine looks a lot like yesterday’s banking, or in other words, banking gone “back to the future.”  In the past, consumers relied on one or two institutions, and banking was more relationship focused.  Today the average household has 15 bank accounts , and may additionally rely on personal finance or payments tools produced by non-banks, independent financial advisors, or alternative financial services to meet their financial needs. A “back to the future” model of banking would leverage technology to serve a greater range of consumer needs, forge deep relationships, and create true engagement banking .  This is the future I most hope for.

Melanie Friedrichs

Melanie likes writing and data.In addition to financial technology and marketing, her interests include financial regulation, macroeconomics, and startups.

Melanie is a member of the first class of Venture for America, a two-year fellowship that seeks to revitalize American cities through entrepreneurship by matching recent college graduates with start-ups.You can reach her at mfriedrichs@andera.com or on twitter @mfriedri.

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