The digitization of the global economy will create more than just efficiency in the banking space. It will contribute to reinventing the face of banking and redefining the way we think of banks altogether.
Digitization has clearly made banks feel disrupted for quite some time now because new players can come to the market with new services that consumers adopt very quickly. Of course, it’s far easier for them to launch new services and use new tools, because they don’t have the complex legacy tech and data environment that the big institutions in the Old World sit on.
Today, we have a world where neobanks that offer digital- or mobile-only financial services focus on innovative services, while banks provide the balance sheet. There’s collaboration and partnerships happening— although, in my view, certainly not enough. But neobanks don’t want a balance sheet; they largely want to be an almost technical layer so they can bring innovation to the market quickly. At least right now, they want to avoid a big balance sheet because with that comes regulation, restriction, and cost.
In time, the question of fintechs versus banks may surprisingly be answered in the banks’ favor. My prediction is that over time, some of those larger players will be truly improving their systems. By then, they’ll have acquisition strategies in place and might even be able to create a few things in-house to catch up and regain control of the market.
To do so, banks will ultimately face further disruption. There still needs to be more of a weeding through to see what can be automated. It has happened incredibly fast with the trading floors: You used to have a hundred people trading, but maybe now there are two or three that press a button when the screen goes red. There’s a lot more space for automation across banking.
Automation isn’t just about adding new technology. Even as some traditional finance jobs invariably go away, new qualitative roles will rise to oversee this automation. Even though automation for simple things tends to be fairly linear, there’s a risk with the more sophisticated algorithms and procedures that things might go wrong. People will need to have enough knowledge at a human level of that new technology to be able to intervene and reverse transactions and change procedures around when certain things happen.
As such, one of the biggest changes is that banks are going to have to significantly rethink the qualifications they look for in their staff, along with their approach to internal rules and procedures. This, in a way, potentially reinvents the face of banking.
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