Relevance of Banks in the mid-to-late 21st Century – Part-I

Headlines today!

What are some of things that Bank’s do now?

•   Accept Deposits (and facilitating withdrawal of these deposits)

•   Issuing Loans (and ensuring that the loans are collected with interest)

•   Issuing and clearing Checks, Demand Drafts

•   Facilitating Direct Debit/ ECS

•   Issuing/ Discounting of Overdraft, Bill of Exchange, Letter of Credit

•   Invest in Bonds, Securities, etcetera

•   Safe deposit lockers/ safe custody

•   Merchant Banking and Underwriting

•   Bancassurance

•   Cards - Debit, Credit, FX, Gift, Special Purpose

Things: They are a changing…

•   The way people bank is changing

•   Retail sector has adopted digital channels at the bleeding edge of technology

•   Corporate sector has traditionally been a laggard in adoption

•   Legislation and rising costs of traditional banking are forcing a rethink

•   Very few banks have identified how to use the huge data they are sitting on and how to leverage more

What/ who is changing the status quo?

•   Fintech startups

•   Legislative push towards digital channels

•   AI – Machine Learning, Expert Systems, Natural Language Processing

•   Mobile devices, Internet-of-Things

So what is changing?

•   Banking from/ to anywhere, anytime, anyhow

•   Bank will increasingly move from stores-of-money to stores-of-data

•   Money is increasingly an digital/ virtual

•   Countries (and surprise-surprise even Banks) do not want to be handling paper or paper currencies due to the increased risk and costs involved

•   Decentralized data stores of digital accounts controlled by a statutory authority will kick-in sooner than later with transactions happening point-to-point eliminating middlemen

Many banks are spending a lot of thought and implementing common platform for all their offerings. They are embracing innovative digital channels. However, with extremely quick innovation (read disruption) cycles will they be able to keep pace, be nimble?

In 2017, we saw many countries and central banks mark crypto currencies as non-legal tender. It is important to note that hardly anybody has marked it as an illegal tender. The BIS and central banks worldwide are working round-the-clock to identify how to get a proper framework to control crypto currencies. Into the future, something like an XDR (Special Drawing Rights) currency, will not be linked to a currency basket as, is being done today but to a common world currency. The “problem” with this is will remove a lot of complexity in the world market. Many intermediaries, many brokers, too many high-paying jobs are at stake. Officially, it will not be easy to push this out through the World Bank in turn through all then countries. However, with a parallel economy cropping up and growing, by the 2040s’ at the latest, this is bound to come into fruition.

• How will banks cope?
• Will banks be relevant and how?
• Will the behemoths of today remain?

Do wait for the next part in a couple of weeks.

Please leave your comments and let me know your thoughts.