"The banks are still really concentrating on 2020. It is worrying how little they are concerned about 2030". A strong statement by Joachim De Vos, CEO of TomorrowLab and Living Tomorrow, but based on various meetings with financial leaders.
At TomorrowLab, events are organised regularly in which top people from various sectors can bounce ideas of each other about the future. Joachim De Vos met recently with a number of CEOs of major banks. And it was not the first time. Exactly what was discussed at this kind of meeting remains secret, but he is prepared to discuss the prospects for the financial services industry through a number of questions.
Which new players can banks expect to face?
"Whenever two parties enter into a contract, there is almost always a transaction that forms the final element in it. Until now, banks had a monopoly there. The European PSDII Directive just cuts the customer relationship of the banks with their customers. That means that banks are only providers of the 'account'. The new challengers break down into two groups. The big players like Facebook, Google, Amazon..., are trying to exploit their technological expertise. They are trying to take the initiative in every aspect of our lives. So it is hardly surprising that they are developing payment services and the like. They also have the resources to fight that battle and plan on doing just that. Besides them, there are small market entrants. They specialise in a particular niche, and they have really put some thought into their service. Just think about stock market transactions, exchange rates, apps that help you keep on top of your household budget or easily share a restaurant bill. They link to their service via APIs to their users' account in the back-end of the traditional banks. A customer therefore creates his own personal banking service via third parties. Companies have their own developers or an IT department that can set up a link to the bank via APIs.
How can the banks prepare for that?
"Despite the financial crisis, the image of banks in terms of security is fairly good. Safeguarding identity is a big opportunity for them. In addition, they need to learn from the small challengers. They show par excellence that a small, enthusiastic team can make a big difference. If necessary in an environment that is independent of its own systems, so that there are no legacy issues. We are moving at lightning pace towards totally digital systems like Bitcoin. Where you used to have 100 bankers, you will soon only need 1, backed up by technology. Think of Artificial Intelligence that helps with investment decisions, or a chatbot that can deal with simple customer questions."
How can banks remain attractive?
"Banks need to subject their value proposition to a critical analysis. Is what we are offering our customers really that unique? It very soon boils down to convenience and interface design. What really makes the financial services industry different is trust. If I put my capital into an organisation, I want to be certain that they will take good care of it. In addition, as consumers we are constantly being asked for instant feedback. If I order an item from Bol.com or Coolblue, then I can expect it to be delivered to my home next day. Banks need to explore how they can fit into that narrative. If an entrepreneur sees an opportunity, but is looking for financing, he needs to be able to get instant feedback about his application. The money should be in his account the same day."
Do we still need banks for lending, when you see the popularity of crowdfunding?
"Anyone who is familiar with the Gartner hype cycle knows that in the initial phase, the sky is the limit. Then comes a period of disillusionment, in which we need to think about how the technology can be allowed to mature. But banks are already playing a role in the new credit provision. Both KBC and BNP Paribas have their own crowdfunding initiatives. Perhaps they will be able to leverage their role as a trustworthy party in the marketplace."
Do banks need to digitalise less and get back to providing personal contact?
"I would rather say that they must digitalise to make banking personal again. The number of branch visits will fall sharply, but how can you deal with people with a highly developed digital channel? There is still a lot of room for improvement. Do I really need to take half a day off to sit opposite someone at a table? Perhaps a notification at the right time on my smartphone is much more relevant?
Is it possible to sketch out a picture of a bank in 2030? Will it still exist?
"Of course we don't have a crystal ball, but the banks that we have today are concentrating on 2020, because of GDPR and PSDII. It is worrying how little they are concerned about 2030. All their efforts today seem to be going into IT, but strategy and innovation culture are lagging behind. They are building risk models for portfolios, but not actually for their own business. What will be the requirements of tomorrow, and what kind of services can they build around them? These are the questions we aim to answer at TomorrowLab. Banks will have to reflect about what they want to concentrate on. I can see three main lines of action:
- APIs: I have to make sure that my API is the best on the market so that everyone wants to work with me.
- Open versus closed: will we keep that API and/or services closed or open them up to everyone?
- Final consumer: do I want the link with the final consumer or will I leave that to others, but I will provide the technology and concentrate on the other two fields?" "Those are the options on the table and in each of those options, strong players will emerge. Financial players will be known mainly for being close to the consumer. Of course, it could also be an 'empty box', a sort of line extension of a strong existing brand. Services that are really close to the consumer, the successors of Facebook, will make use of their brand awareness to offer financial services. The bank of the future will consist of various small banks that cooperate with large networks to bring them to the consumer."