In what was perhaps one of the most pertinent sessions of PayExpo, this was the question put to a panel: what is the role of traditional banks moving forward in an increasingly digital world. Will they adapt or die?
Galvanised by legislation such as PSD 2 there has been a warming in the relationships between fintech startups and the incumbents with many now seeming to agree that both sides will need to work together to build tomorrow’s financial services. High profile UK fintech company TransferWise, which hinged a lot of its early marketing on “Bye Bye Banks” campaigns recently announced a partnership with Estonia’s biggest domestic bank to offer its service to their customers.
While today the rhetoric in the industry has largely moved away from “us versus them” talk among fintech companies a couple of years ago, that doesn’t mean there isn’t a healthy amount of scepticism on both sides. Here are four arguments put forward by speakers on the panel on whether traditional banks will become redundant in the digital era.
1. Banking’s ‘Kodak moment’
Tom Blomfield the CEO and co-founder of bank challenger Mondo, which recently broke a record with the fastest £1m raised through crowdfunding is (unsurprisingly) doubtful over the future of traditional banks. Suggesting that inertia among bank customers is being misread as loyalty, he suggested the banking industry could be heading the same way as DVDs and cameras, where incumbents were suddenly and devastatingly disrupted by digital players.
“There is a real possibility that we are approaching an ‘off the cliff’ moment in banking. A number of industries have had them,” he said, speaking on the panel. “Kodak for example with digital film or Blockbusters with Netflix and a number of other services where those industries thought technology would slowly make their businesses evolve but actually they were going along fine and then suddenly fell off a cliff.
“There is a particular convergence of consumer demand, driven by smartphone adoption, with back-end technology and payment systems, but also regulatory change since 2013. There is real appetite at least in Europe for new banks to come and challenge the models. I think those things will converge and result a ‘dinosaur’ or ‘off the cliff’ moments for a lot of banks.
“Nokia has a market cap less than 10% of what it was at its peak – will that happen to the big banks? Yes it will happen to some. Two of the high street banks should already have failed – they were bailed out.”
2. “We are all completely reliant on banks”
Laurence Krieger, the COO of Revolut – another highly-touted UK fintech startup this time focusing on foreign exchange – offered a different perspective. He argued that banks are too embedded in the global payments and finance system to disappear any time soon and most new digital entrance rely on them. He also warned not to lose sight of attitudes to emerging financial technology outside the world of fintech.
“We’re doing things differently and gaining customers at a very rapid rate,” said Krieger. “But like all of us here we are all completely reliant on banks. The reality is that the global banking system is a system that any payments company has to be reliant – even if you are a bank you’re reliant on other banks to transact.
“I also think there is a huge reluctance to change within the greater community. It is easy for us to get carried away at a payments conference. We’re all fintech people, we are all early adopters. We get very excited about new technology and I think certainly younger generations of people are looking at banks and saying, ‘why do I need a bank?’. But in terms of the time it will take to change, just look at older generations that have been using a bank since they were kids and are now in their 50s and 60s. That process will not happen overnight. The banks will not just roll over and die, they will adapt and are doing so.”
3. “We need traditional banks to play a part in helping to build trust with new players”
Offering the perspective of a bank – albeit not a traditional bank – Kriya Patel the managing director for The Bancorp in Europe suggested banks won’t go away but they will (have to) change.
“We are approaching over next three to five years the perfect storm for disruption in the financial services industry. The banks aren’t going to go anywhere but they are going to change,” says Patel. “Banks will be the customers and suppliers of the fintechs. They will be changing their business models to make sure they do not lose out on an opportunity to retain customers.
“When I talk about the perfect storm I am talking about understanding consumer behaviour which fintech companies are brilliant at. But there is regulatory change and technical change and there is a need for the framework around how banks have worked with each other and within the financial services industry to change. It’s always been an easy cop out to say ‘it’s outside our risk profile or parameters’ – whatever those parameters are. But we need traditional banks to play a part in helping to build trust for new services. They’ve got to evolve and play their part to help new players to success.”
4. “Banking cannot be abolished or else the fabric of our society is gone”
Meanwhile, Ghela Boskovich, director of global strategic business development and marketing at Zafin, says banks aren’t going anywhere and that B2B will not see the same kind of change that’s happening on the consumer side.
“I do not think B2B will be disrupted in the same way as we’ve been talking about in the customer facing space. When we look at B2B it is more institution of trust. That is the framework and ethos in which to look at this,” says Boskovich. “Banking has been an institution for millennia – ever since we started supply chain trade and started bartering systems. It cannot be abolished in any way shape or form or else the fabric of our society is gone. We also can’t talk about it in terms of dinosaurs and fintech as the asteroid waiting to hit and there will be a sudden cataclysmic disappearance of these institutions.
“Trust is one of those things that will evolve and it is a proof point that is continually proved: ‘Is my money moving? Is it safe? Am I able to rely upon the institution to which I entrust my transaction to ultimately get the money to whoever I am purchasing from?’ That chain or rail is a very difficult to replace.”
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