Digital disruption is coming to banking at last
The implications are profound because banks are not ordinary firms. It is one thing for Blockbuster Video to be wiped out by a technological shift, but quite another if the victim is Bank of America. It is not just that banks have over $100trn of assets globally. Using the difficult trick of “maturity transformation” they enable savers to defer consumption and investment and borrowers to bring them forward.
Banking is late to the smartphone age because entrepreneurs have been put off by regulations. And, since the financial crisis, Western banks have been preoccupied with repairing their balance-sheets and old-fashioned cost-cutting. Late is better than never, however. Several new business models are emerging. In Asia payment apps are bundled with e-commerce, chat and ride-hailing services offered by firms such as Alibaba and Tencent in China and Grab in South-East Asia.
The benefits of technological change are likely to be vast. Costs should tumble as branches are shut, creaking mainframe systems retired and bureaucracy culled. If the world’s listed banks chopped expenses by a third, the saving would be worth $80 a year for every person on Earth. In 2000 the Netherlands had more bank branches per head than America; it now has just a third as many.
Another dystopia involves fragmentation and destabilisation. Banks could lose depositors to untested neobanks, creating a mismatch between their assets and liabilities that could lead to a credit crunch. If bank customers transact via tech or payment platforms, banks could end up with huge balance-sheets but without a direct connection to their clients.
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