Arjen van Berkum
Recently I wrote a blog on the top 15 jobs most likely to disappear. Quite a few readers asked me why bankers were not on that list. A valid and logical question. Technology is changing fast and the possibilities tech solutions bring us are innumerable, but still the world is not ready yet for an economic paradigm without bankers. Unfortunately, I might add. Fintech has set in the unbundling of banking, but are not making banks obsolete (yet). Is it in the first place because money exists? Because our payment infrastructure is too complex to disrupt? Here’s why it will take longer for banker jobs to become extinct.
People who have money, want to do something with that money. To make sure their bank balance grows and – with that growth in mind – to minimise tax payments by looking for loopholes within the legal framework. Banking products are enabling them to do this. Besides that, we are dealing with an economic model that is being kept up by financial institutions and regulators that are very outdated. These traditional paradigms will keep on existing as long as fintech cannot fully cover all the necessary stacks in the payment value chain. It will take over 25 years to change into an infrastructure that can maintain a paradigm in which fintech start-ups can meet all needs and demands organisations and consumers have in relation to banking facilities. To realise that, the most important need that the paradigm requires in order to drive this enormous change is trust. After everything society has been through during the financial crisis and it’s aftershock, trust might be the most difficult asset in the process. Not that people trust banks all that much, but they do have been relying on their finance monopoly for ages. Legacy is withholding bankers from their elimination. For now. Next to that, we should not forget that the entry into the banking system is very expensive as part of the regulatory environment that is protecting banks. Regulators are government and therefore slow in change.
Unbundling of banking
The above said, the process of changing has already been in progress for a while. Since the financial crisis, banks have to survive in a market that has been subject to strict new capital regulations. This causes a drastic reformation of the capital market. Furthermore, banks are experiencing competition from a significant volume of financial technology start-ups that don’t have to obey these regulations.
What is happening today is that fintech initiatives are slowly taking over small parts of the payment stack value chain. This is called the ‘unbundling of banking’. Just because banks have been sitting on the finance throne for ages, it doesn’t mean they are invincible. Although banks are trying to incorporate innovation, it doesn’t mean they can keep controlling the economic paradigm. Start-ups are reinventing the banking business, particularly in retail banking. Many ambitious fintech start-ups come up with smart solutions that are capable to disrupt parts of the finance world.
The disruption of money nearby
Isn’t money a bit old fashion by now? There are other ways of evaluating goods, assets and capital. Take for instance bitcoin or blockchain. But let’s begin with a simpler example. How often do you pay cash or take out money from the cash dispenser nowadays? And how many payments do you process through digital solutions? So, what is the added value of the current monetary system? I do not claim to have the answer, I’m just curious on how this could be disrupted. Should it be disrupted? Bitcoin is cool. Blockchain technology is deliciously disruptive. But it is not enough. Is this phase it could never replace traditional money. And before a tech solution could ever replace it, there is the urgency of security. The necessity of knowing what dilemma’s will eventually be capable of endangering the data and capital of people is crucial. What can be invented, can be hacked. Right? The true currency of bankers is trust. Since others are less trustworthy than bankers, it will be a matter of time for someone to take up this glove and eliminate the old legacy burdened banks.
The worthy component: security
Changing the economic infrastructure by using different currency systems and payment technologies will require a whole lot more, like a different set of regulations and security measures.
Simplicity. Regulators are demanding this, customers are expecting it. Start-ups are emerging, delivering financial services with easy-to-use apps. The unbundling of banking is undoubtedly complicated. Also, there are probably still numerous dangers that haven’t been identified yet. Therefore, it is all about getting back to basics.
Digital payment are becoming more accessible. End-users (thus customers) are eagerly adopting digital payment solutions. Therefore, the emphasis within fintech and the unbundling of banking should be on security. The substantial investment in fintech will also significantly change how consumers deal with financial products. Fintech start-ups seem to address the changing needs of customers a lot better. Also, the technologies are highly scalable with the use of mobile platforms. This will increasingly change the way people will be enabled to borrow and to trade. Investing will become a whole different ball game. Imagine the profound implications for the way companies will interact with their customers. The transformation towards so called ‘platformification ‘, where companies will be offering a combination of goods and services on mobile platforms, has already began. Within a few years fintech solutions will be expanded considerably. Is our security ready for a technological evolvement like this? Or will a fintech disruption trample us? No and yes. Today that is.
So, there is still a long way to go. Security and infrastructure issues need to be covered and there is that matter of customer trust in order to achieve complete adoption. Until then, we won’t wave the banker goodbye. Let’s involve them in the transformation. They might be very traditional from mind, but they still hold a lot of important knowledge. Maybe this will even create the balance in the pace of innovation that we need right now.
The author Arjen van Berkum is columnist, motivator, bon vivant, innovation fan and visiting lecturer at Delft University of Technology (TU Delft). He is founder and Managing Director of Betula Services. www.arjenvanberkum.nl
