Today, I attempted to tackle this question at Money 20/20 in Copenhagen, analysing the profound upheaval that I believe the financial services industry will imminently face.
Warning lights are flashing. Challenger banks are beginning to make waves in the market: in the UK, Metro Bank’s assets are up 57% in a year, and Virgin Money’s annual profits are up 41%. For more services that used to be monopolised by the banks, such as payments, international money transfers and peer-to-peer lending, FinTechs are proving that you now don’t need to use a traditional bank at all. And early movers are now diversifying, introducing innovative products like borderless bank accounts that challenge retail banks at their core businesses.
I believe we’re now at the end of the beginning of this process. Over the coming five-to-ten years, threats to incumbent banks will intensify, threatening severe disruption to their business model. As FinTechs expand their operations into mainline banking services, so too will banks increase their partnerships with FinTechs to increase the quality of their offering to customers. Regulation will force banks to open up their platforms to wider competition, leading to the creation of open banking platforms that empower customers with more transparent fees. And as blockchain technologies begin to proliferate across the sector, estimated efficiency savings of $80-110 billion will add to its momentum across the sector.
I believe there’s a real risk that if banks aren’t able to successfully navigate the Uber moment of their disruption, they could face the Kodak moment of their obsolescence.
So why isn’t your bank changing?
For too long, banks’ poor technology has hobbled their ability to respond swiftly to emerging technological threats to their business. But the problems of poor technology – the expense, the inefficiency, the opportunity cost – will only be solved if banks take a radical approach to reinvention.
I can sympathise. Banks are complex, often mature institutions that have already made significant investments, and are wary of changing a model that exists now for the promise of gains in the future.
But make no mistake: jettisoning the incremental approach that adds a new computer system here or a new functionality there will be essential if banks are to thrive. As I warned at LendIt USA in March, nothing short of transformation is required.
That’s what my company 10x sets out to do. We recently celebrated our first birthday, and over the past year I’ve been overwhelmed at the response to our call to create a banking system that is more diverse, open and fair. Eight months since our launch, there are now 70 of us working to design the future of money.
We aim to help all financial services providers – whether incumbent banks or challengers – make technology an asset, not a liability. We don’t think that banks need yet another system that makes their backend even more complicated, so we’re building the best possible digital bank from scratch. We don’t think banks should use 70% of their technology expenditure just to keep the lights on, as they do now, so we’re designing an infinitely configurable, future-proof system that evolves over time. And we don’t think security risks and downtime should be a necessary part of the digital banking experience, so we’re using the best possible technology to make digital money as safe, quick and reliable as we can.
We’re creating not just the technology that banks need, but also the digital platforms they want. That means designing the system from the bottom up, from each line of code and design right up to the finished platform, to ensure that we create a truly transformational digital banking experience that perfectly reflects the end user’s priorities.
As I outlined at Money 20/20, embracing this transformation will require leadership and courage. But for the bold who are willing to seize the opportunities digital transformation presents, there’s never been a more exciting moment in banking.