The shape of things to come?
What will the bank of the future look like? This is a question that interests bankers and futurologists alike. But it is more important for bankers to see the future clearly and adapt to meet it as it is, after all, their likelihood at stake. The only thing a futurologist might lose by getting it wrong is a reputation.
Banks have of course changed, often dramatically, over the course of the past 10 years. Not only because of the global financial crisis. But also because clients - from the smallest retail customer to the largest corporate or institution - are changing the way they use their banks. They are questioning their once-revered and unquestionable bankers. Some are, it seems, questioning their very ‘raison d’etre’. In an increasingly automated world, where low-cost, low-fee fintech disruptors abound, why stick with a bank if a cheaper, more efficient provider can be easily found?
Retail clients do not appreciate the underlying economics of traditional cross-border payments processing based on the SWIFT network. These dictate charges that are high in relation to low value payments, and higher than those levied by newer providers without costly legacy infrastructure to support. Corporate clients, by contrast, tend to emphasise the processing of payments in a safe, efficient and timely manner. Cost for them remains an issue, but it is not always the issue.
There is no doubt, though, that we need to cut costs, whether by improving existing technology or installing new systems. Banks which can do so will be well positioned to attract higher volumes, paving the way to a classic virtuous circle.
Higher volumes lead to lower costs which leads to cost reductions which leads to higher volumes.
We all know that banking has become a heavily regulated industry in recent years. Banks must understand the requirements of existing, pending and future regulation in minute detail, and ensure that processes are in place to regulatory-compliant in a cost-effective manner. Those who fail to adapt to today’s much stricter regime are not likely to thrive in the future.
Like it or not, that is the context in which our industry finds itself. As our activities become more complex, we must become more and more focussed on what we know and on what we do well. Mastering a wide range of services and geographies carrying all their own specificities has become a real challenge in a fast changing world driven by complex and moving regulations and evolving consumption patterns.
Future investment will be chosen carefully, focused on markets and activities where we see the possibility of momentum and sustainable growth, these assumptions coming often with already well established business positions. Every financial institution has a finite amount of human and financial resources and probably unprecedented care is nowadays exercised in the allocation of those resources.
The risk and reward equation cannot be ignored.
If the risk taken in one sphere of activity does not deliver an appropriate reward, it is time to leave the market in a dignified manner, and focus resources on a more relevant activity, carrying more revenues, less risks, lower costs or better synergies.
To perform well, banks should have the (financial) means to control their destiny, by which I mean the possibility not to sacrifice meaningful but long-term options on the altar of shorter terms results. Most banks and their top managers are hiking on this narrow path, finding a way to prepare for the future while ensuring the viability of the present.
New technologies are often presented as a threat, a means to disrupt banks. Personally, I would rather see them as enablers to meet our cost reduction objectives. As the payments world becomes ever more heavily regulated, the industry winners will be the most cost effective players. There is no doubt that robots, AI or machine learning will be part of that game, probably in a new and more open mode. But while the robots might be on the rise, there will always be a role for human beings in the banking industry. This is something that we should not lose sight of as we try to imagine what the bank of tomorrow will look like.
The challenge that faces us is to maximise the advantages offered by new technology in terms of efficiency and cost-effectiveness without eliminating the human touch from our regular interactions with clients.
If a payment fails because of the poor formatting of an instruction, a human steps in to take care of the problem arising from that failure. Automating that process could make a vast difference and artificial intelligence and machine learning can help. Similarly, increasing and huge numbers of transactions are stopped for compliance controls, mostly for invalid causes. As of today, all the banks are adding more and more people to instruct these mountains of false alerts, making their best efforts to protect themselves from fines and reputation risks, the world from financial crime and terrorism financing. Nevertheless, one day, smarter tools will be deployed, driving up security and driving down running costs.
That said, in certain situations, as we all know, there is simply nothing better than a face-to-face meeting. There will surely always be occasions when a client will prefer to deal with flesh and blood rather than with a computer relentlessly saying ‘No’, including for a simple cross-border payment carrying a formatting issue or raising compliance questions. Furthermore, we can trust our regulatory authorities to ensure that the banks will keep a strict control on what they do, whatever the technology put in place. This means that all our decisions should remain traceable, auditable and explainable, whether taken by a robot or a flesh-and-blood employee.
In short, technology will help us do what we do in a more efficient and less costly way. But it is not, to quote the author Douglas Adams, the answer to life, the universe and everything. The future lies in combining the best of humans with the best of machines.