One of the key topics to emerge out of this year’s Internet of Banking & Payments is the threat posed by Big Tech and whether incumbent retail banks will become irrelevant in the digital era.
So much so that a panel discussion was dedicated to the subject, giving some of the industry’s most forward-looking experts a chance to share their views on how technology companies will reshape the industry.
Moderator Tony Craddock, director general at the Emerging Payments Association sat down with Richard Wagner, CEO, Cashplus; Jade Chin, Mobile Payments Innovations & Partnerships Lead, Barclays; and Mark Curran, Director of Payments and Open Banking, CYBG.
It’s no surprise opinions were nuanced, given the complexity and variety of global banking, the rapidly evolving digital landscape, and the differing strengths between incumbent banks and Big Tech.
In his opening statements, Mark Curran foresaw the discussion that followed – Big Tech present both opportunities and threats. Collaboration stands to benefit both parties but in the decades to come the traditional role of retail banking will morph into something that operates more behind the scenes, and less front and centre.
However, Richard Wagner believes that people won’t bank primarily with Google, Amazon, Facebook or Apple in his lifetime:
Are you going to put your paycheck into amazon any time soon? I don’t think so. Your kids might, though.
“Payments is a generation game. Nothing happens overnight.”
Moderator Tony Craddock may have lightheartedly dubbed Wagner ‘Grandad’, in response, but it’s an important point. Big Tech will likely play a key part in banking in the future but the trust incumbent banks have built up, in some cases over hundreds of years, remains their key strength.
Jade Chin, also raised the issue of trust. While some people may be comfortable processing small payments through a technology company, sending large payments or trusting them with your salary is a different prospect.
Nor will the regulatory hurdles that GAFA will have to conform to be made any smaller by the vast capital they wield.
The payments revolution
Still reeling and reforming after the global financial crisis, the banking sector has been slow to undergo digital transformation. Many banks are also weighed down by legacy systems or slowed by local regulations.
As Curran points out:
While Amazon and Facebook offer largely the same products in every nation, banking services, and the regulatory processes that accompany them, are very different across different countries.
Yet, the expectations of convenience, fuelled by customers’ mobile-first approach, and the demand for instant transactions, is greasing the gears of change.
So too are challenger banks and FinTechs, empowered by Open Banking and PSD2, in leading by example and raising the bar for the user-experience banks should be providing their customers today.
Some nations are held back by legacy payment infrastructure. Ironically, it’s often the more developed countries, which established such systems first, that are now lmiited by solutions which have origins dating back over a hundred years. The US is a prime example.
Tony Craddock claims, despite this, the UK is “an exemplar of how to run payments.”
Asked what he would do differently if the US was given a chance to start over, Richard Wagner highlights a key technology cornerstone for the future of banking: a distributed, cloud-based, network. In an ideal scenario, he would have everything happen in real-time, and protected against downtime.
Mark Curran pointed out that the days when a bank’s mainframe can go down for 48 hours, as once happened to Citibank, and no customers notice are long gone.
The bank of the future
Today, many banks build their systems on Amazon’s AWS cloud services. Therefore, it is not a large leap of the imagination to picture where banking is heading and the role the likes of Amazon will play.
Incumbent retail banks won’t be as irrelevant as many would have you believe, but they will likely forfeit the customer-facing elements to those companies that do it better – namely digital-first technology innovators.
We will always need banking, but the role banks play is starting to shift.
While many will lose out to more innovative alternatives, there is massive opportunity too, on a global scale.
The value generated by frictionless real-time payments could mean customers no longer have to pay to move money, leading to a different challenge – how do you improve on instant and free?
All other things being equal, banking services providers will differentiate themselves by what they do with the data they have access to in the age of Open Banking and the intelligent, personalised products they build around it.
The banks that emerge successfully from the FinTech revolution will combine their traditional strengths – regulatory expertise and customer trust – with the UX and technology capabilities of their partners: whether that means tech start-ups with innovative products, or a Big Tech company with a global cloud infrastructure.