The future of banks is not banking…
Even beyond banks, what is the future for any company? Can companies really know what line of business they will be in in the future?
Can banks really know what line of business they will be in in the next 10 years?
These sound like crazy questions, right? Banks have been banking for over 100 years, why would that change?
Let me draw a parallel with the telecoms industry. Initially, we sent smoke signals or used drums to communicate with other humans from a distance. Then came hydraulic and optical semaphores typically used to communicate between humans on land and those on vessels at sea. The first electric telegraph was created in 1809 and by the mid-18th century, the USA had almost 2,000 telegraph lines transmitting morse code across 20,000 miles.
The first commercial telephone systems to transmit voice came in 1878 thanks to Alexander Graham Bell and they were soon rolled out across a number of countries. It was not until 1927 that transatlantic calls were made possible using radio rather than physical lines. In 1961, Telstar enabled the first calls via satellite and around the same time the industry adopted semi-conductor technology that enabled broadband packet switching, ultimately allowing over a billion people to make calls. Then came the internet, followed by mobile.
So what’s my point? From the 1800s, the pace of technological evolution has massively increased, and the scale of adoption has broadened to the point where 95% of the planet has mobile coverage and over 66% of the planet has a smartphone. A phone that we use much more for data than we do to speak to someone. In the future, it’s likely we won’t even have physical phones – we’ll either use embedded devices or communicate in the metaverse. Yet somewhere in the background, telecom companies will exist to provide connectivity for data to flow.
What about retailers? Already many of us turn to Amazon before venturing out to shops. Beyond drone deliveries making shopping even more convenient, consider the progress in “micro-farming” and 3D printers. In the future, we could be growing our own food and printing our own products. Going back to Amazon, even they started out by selling books, and now they really are a logistics and technology company (AWS).
Or what about going out to a restaurant? Surely that will always have to be done in person? Perhaps. But what if your guests all met in the metaverse while your physical meal was served at home? The experience would be a bit similar to the “Dans le Noir” meal craze where diners in restaurants eat meals in the dark.
For some, evolution towards ever-increasing change in our lives enabled by technology paints a picture of a dystopian future similar to George Orwell’s 1984. For me, as an optimist, it’s quite the opposite, but that is a much longer conversation for another day.
The key thing for every company is to be aware of what technology changes could impact their business, and to focus on the how and when. Then, firms should create a plan that identifies when and what to do about that change. This means having multiple business plans and an organisation that constantly monitors when and if to execute on a different plan. This is a big change to the single five-year business plan most companies are accustomed to. It’s also a big investment, as more resources will be needed to create and monitor the plans.
For banking, digitisation and mobile have had a huge impact on customer behaviour, and banks have largely been able to invest in and manage these changes. But we have many more huge technology shifts on the horizon to consider, with some almost on our doorstep ready for broader adoption.
For example:
- Could generative AI create greater efficiency in customer support and financial advice?
- Could crypto/CBDCs mean that the existing bank payment infrastructure is replaced?
- Could open data help a new generation of fintechs improve customer intimacy by creating fully integrated customer journeys?
- Could quantum computing revolutionise trading and financial simulation/modelling?
- Could data trusts/digital wallets create new roles for data “validators” and custodians? (Note that China has already provided “licences” for telcos and banks to provide digital wallets.)
There are many more examples I’m sure others could point to. In many cases, it will not be a single technology but a combination of a few that come together to create the change. For example, smartphones had been around a long time even before the iPhone. It was the combination of a better-quality touch screen, cheaper memory, faster processor and better mobile broadband that helped accelerate its adoption.
It is certainly a complex picture, and we have not even started adding other dimensions like politics and economics yet. Larger banks have the resources to invest in all areas. For smaller banks, they only need to focus on those that affect their chosen path.
This week, I’m just saying that in my 30 years of banking technology experience, defining the future of banks is much more complex now than it has ever been. Can banks really know what line of business they will be in in the next 10 years?
About the author
Dharmesh Mistry has been in banking for more than 30 years and has been at the forefront of banking technology and innovation. From the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).
He has been on both sides of the fence and he’s not afraid to share his opinions.
He is CEO of AskHomey, which focuses on the experience for households, and an investor and mentor in proptech and fintech.
Follow Dharmesh on Twitter @dharmeshmistry and LinkedIn.
Read all his “I’m just saying” musings here.
