It's no secret that the digital revolution, in addition to the pandemic pivot, has changed banking, but to what degree? Can the change be so massive that banks might disappear and metamorph into alternative models like prepaid cards and non-bank lending? Should we blame cryptocurrency for the creation of decentralized financial models? Or is financial technology (fintech) the culprit here? Speaking to the American Banker publication Nigel Morris, a venture capitalist at QED Investors, said: “We’re at the beginning of a digital disruption wave that will challenge banks at their very core.” The need for change Key insights from a report done by N26, a German neobank, and Eric Taylor from Varo Bank, titled The Death of Banks, noted a 6.5% decline in bank branches since 2012. This trend would see the total number of physical banks fall to fewer than 16,000 in the US by 2030 and all branches closing by 2034. Innovation expert JP Nicols agrees that traditional banking is going through a seismic shift. “Banks have to upgrade themselves or risk being burnt to the ground.”
A grim future or a different model?Is the future of banking grim? Will banking transform into something completely different from what we are used to? "We believe we have the model of the future,” Jane Fraser, Citigroup CEO, explained to reporters. “A light branch footprint, seamless digital capabilities and a network of partners that expand our reach to hundreds of millions of customers." Forbes magazine predicted that by 2030 banks will be:
- Invisible: Due to technological advances, “retail brands will become increasingly invisible to the end consumer.”
- Connected: Banks will be present in the ecosystems that customers use.
- Insights-driven: Banks will use data to elevate consumer trust.
How can banks survive technological disruption?Financial technology (Fintech) is growing at a remarkable rate. The global fintech market was worth $127.66bn in 2018. It’s predicted to grow by 25% until 2022, to $309.98 bn, and it continues to disrupt traditional banking. “Fin-Tech and banks need a cultural reconciliation: risk appetite and tolerate trial and error,” said Hugues Delcourt, former CEO at Banque Internationale A Luxembourg S. For banks to survive, they have to embrace fintech platforms and adopt several other practices. According to industry experts, banks need to do the following:
- Become decentralized.
- Incentivize culture change.
- Embrace Blockchain technology.
- Provide transparency in lending.
- Partner with fintechs.