“Banking is necessary – banks are not.”
This quote from Bill Gates sums up the challenges facing banks in the 21st century. However, although it sounds threatening, the way it is coming true opens up new paths for banking – and for banks.
There will always be a need for financial services, and for processing financial transactions. However, the world is waking up to the idea that traditional banking might not be the best approach when it comes to delivering these services.
Meanwhile, the risk-friendly climate of the turn of the century has transformed into a new environment of austerity and regulation. National governments and banks alike are finding new challenges to their liquidity and cash flow.
The bad news is, the pace of change is not going to slow. That is also the good news, however. The combination of accelerating technological change and changing economic circumstances creates an environment ripe for disruption. And, by combining their existing knowledge, reputation and relationships with innovation in technology and approach, banks can instigate, direct and benefit from disruption.
The speeding cycle
Technology generations used to be measured in decades. Now, they are measured in years.
In 2007, little more than 5 years ago, RIM and Nokia were dominant in the mobile space. In 2013, both are fighting for a place in the future of mobile communications, facing make-or-break periods.
Neither anticipated or adapted quickly enough to new competition – especially from the iPhone and Google’s Android – which revolutionised expectations of what a phone could be and do.
On the high street, music, video and book stores are disappearing – undermined by services like Amazon which sell at a discount and deliver free to the buyer’s door, and by streaming video services over high-speed Internet connections.
These are profound shifts in the way business is being done – and the banking industry is far from immune. New technologies are changing the way banking services are delivered, and competitors familiar with these technologies – digital, mobile and social – are taking aim at the banks’ business.
However, the pace of change works both ways. New opportunities and new potential markets are becoming available to banks. With the right strategy and the technology to support it, the bank of 2020 may be faster, better equipped and able to offer services far beyond their current range.
In the digital age, information is money and power – and banks have been handling information since banking began. Traditional barriers are being brought down by standardisation of technology and practices and the globalisation of systems and workforces. New ways to market are opening up, and new possibilities are emerging for retail banking, commercial banking and capital markets.
In my upcoming blog posts to Banking View, I will look at how these changes will impact the future of banking. Are there issues you think are particularly pressing? Mention them in the comments to this post, and we may look more closely at them on Banking View.